Multi-Level Marketing: A New Pyramid Scheme

Updated: Jul 27

By Jack Street and Alex De Boick


Intro


As far as we know, pyramid schemes have been a part of society since the early 19th century, although they have probably existed in some form throughout most of human history. Capitalism thrives on shortcuts, every day we are looking to do things as fast as possible in order to get ahead and we’ve become extremely good at doing so. Whether it’s waiting for a coffee, a seat in a restaurant or the latest fashion - we want things on a plate, ready to go.


This is no different in business, maximising profits and cutting costs so that as much money can be made in as little time as possible. This is not necessarily a criticism, the world is moving faster than ever and it is almost impossible not to get caught up in this mentality. But when viewed this way, it is easy to see the desirability and success of get-rich-quick schemes. With less work than a 9-5 job, you could be earning more money than all those "suckers" on minimum wage grinding away in the rat race. There’s no getting around the fact that it’s enticing; pyramid schemes, especially modern-day ones, thrive on their messaging. They promise lavish and mostly unachievable lifestyles with very little work and one of the most recent examples is a company called IM Academy.


Beginnings


Back in the 1990s, a wall street trader named Christopher Terry was roped into joining Amway, arguably the most prolific pyramid scheme, by his girlfriend. Despite making no money from Amway, the experience provided Terry with what he described as a “mindset of wealth”. This phrase proved to be the first glimpse of the inspiration for his future endeavours. After Amway, Terry was involved in the now-defunct Zeek Rewards. The company was incredibly successful, selling $600 million dollars worth of shares through “business opportunities” that involved trying to shift these shares onto the next person down the pyramid - before being shut down by the FTC for fraud in 2012.


Not long after this, in 2013, Terry set up iMarketsLive which would eventually be rebranded as IM Academy. On the face of it, IM Academy is an online resource for people wanting to learn how to trade in Forex which, as any trader will tell you, is one of the most challenging and volatile markets to succeed in.


Forex and IM Academy


We spoke to Rami Holzman, owner of coastal view marketing, about MLMs and forex trading. He explained that Multi-Level Marketing schemes provide a lot of risk for the member and when this is coupled to trading on the Foreign exchange it is a dangerous concoction. Not only do you have the risk of paying fees to learn about something you could learn for free, but you also have the added risk of trading on the world's most volatile market. Whilst Forex provides the lowest barrier to entry, it also brings along the most drastic swings in price. This could either provide great profit with little money on the line or massive losses. The risk that is involved in trading Forex means that even experienced traders avoid it.


Yet upon first glance at IM Academy’s homepage, there is hardly any mention of Forex trading. Instead, you are met with glossy pictures of smiling families and the question: “What would you do if you had control over every aspect of your life?” Scrolling downwards to find out more about the company simply greets you with further inspirational messages about how “finding happiness starts within.”


This is not far from the kind of advertising speak that plenty of other companies use, yet IM Academy has become one of the most notorious ‘network marketing’ companies, a new kind of pyramid scheme that focuses more on selling an idea rather than a tangible product such as overpriced makeup or nauseating health supplements.


IM Academy promises you a bundle of learning resources as well as online mentorship through webinars and livestreams, equipping you with the “skillsets to be in control of your financial success.”


However, IM Academy charges a $274.95 (£221.96) monthly fee alongside an initial payment of $324.94 (£262.31). This works out at a staggering $3,624.34 (£2,933.36) in the first year alone.


With this hefty entry price, the results must surely be lucrative, right?


Well, not exactly. As income disclosures have shown, the vast majority (95%) of members made less than $300 in 2018. IM Academy suggests that it is not a pyramid scheme, but like nearly every other pyramid scheme, a lot of people at the bottom must fail for those at the top to succeed.


How do Pyramid Schemes work?


Pyramid schemes are, of course, illegal but just because something is illegal doesn’t mean it isn’t occurring in broad daylight. One of the sure-fire ways to spot a business that functions as a pyramid scheme is if it refers to itself as a ‘Multi-Level Marketing’ company or MLM for short. What this is referring to is simple. I join a company that sells beauty products, I pay £100 a month in order to sell their products and, for every person I recruit, I get 10% of their monthly fee on top of what I earn selling their products and so on and so forth.


Sounds easy, right? Well, let’s say I recruit ten people. My ten recruits then find ten people of their own. This cycle continues, increasing the number of people each time. It would only be possible to complete thirteen cycles before you exceeded the population of the earth. We were astounded when we heard that too.


This is a very simplified explanation of a pyramid scheme/MLM business but you get the idea. The majority of modern MLMs are set up in a far more convoluted way. This is mainly to stop themselves from being prosecuted however, many of them have been forced to restructure and change their business practices - Herbalife is a good example. In 2016 they managed to dodge the ‘pyramid scheme’ label by paying a $200 million fine and slightly restructuring.


How IM gets away with it


Alongside Terry in IM Academy’s list of shady associates, we come to Alex Morton who is described as a ‘field leader’. A former college dropout turned trader, Morton first worked for Vemma, an MLM scheme that involved the sale of health drinks but was far more lucrative through the constant recruitment of new members. The firm was shut down in 2015 before reaching a $268 million settlement with the FTC in 2016, which also saw its founders banned from working in similar companies.


None of this deterred Morton. He is now one of the most notorious “network marketers” with a net worth of $10 million. His life’s mission is to “tell the truth about the secrets of success.” Of course, what these secrets actually are is anyone’s guess as Morton, or any other “network marketer”, seems incapable of using anything other than meaningless buzzwords or flashy pictures of their lifestyle to describe what they actually do.


This kind of branding is ingenious because it both entices people to join companies such as IM Academy but also works as a defence mechanism against any criticism from people further down the pyramid. If a member has been unable to make any money from the stock market or recruit lots of new members then this branding simply deflects any criticism back onto the person. Clearly, their problems are simply from holding themselves back and they only need to further embrace their new mindset to succeed. This is usually achieved by paying for another month’s subscription.


Conclusion


MLM’s are probably the last thing that the government has got on its mind at the moment but there need to be changes made that either make these scams illegal or heavily regulate them which would force companies like IM Academy to make it absolutely clear the very slim chances of making an actual profit - gambling sites are already forced to do this.


The true extent of the damages that the COVID-19 pandemic will bring to this country are still to be revealed, yet it’s clear that millions are going to be facing unemployment and hardship. We already know that MLM firms encourage the targeting of vulnerable people such as the unemployed. Given the adversity that people will face in the wake of coronavirus, many may turn to pyramid schemes because they advertise themselves as a self-made way out of poverty.


There needs to be action taken so that no one else gets sucked into a scam that will almost certainly cost them even more of their money and stability.



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