MLM Watch: Frequently Asked Questions

Stephen Barrett, M.D.
July 1, 2006

I have never been seriously victimized in any way and am a very upbeat person. I grew up in a family atmosphere that placed great value on education, science, and fair play. My interest in quackery began by accident and was not related to any strong feeling on the subject. During the mid-1960s, I read two books that irritated me greatly. One was about the government’s struggle to clean up the patent medicine fraud that was rampant during the nineteenth and early twentieth centuries. The other described how chiropractors had achieved legal recognition even though the theory behind their work was nonsense. When I voiced my concern to my local medical society president, he suggested that I organize a committee focused on quackery. Further discussion led to the formation of a group that was broad-based rather than composed just of medical doctors. The more we looked at, the more deeply I became concerned.

During the mid-1970s, I began writing about what I found and gradually evolved into a medical writer and editor. As I did so, I gradually reduced my psychiatric work until 1993, when I retired so I could spend more time writing about my findings. The original committee, renamed Quackwatch in 1997, has evolved into an informal network of individuals who provide help when asked.

What got you interested in the MLM industry?

About 20 years ago, people gave me distributor manuals from two large companies and I noticed that they contained misleading health and nutrition claims. During the mid-1980s, editors from Consumer Reports and Money magazine investigated several more and gave me documents they had collected. I also purchased distributor kits from many of the companies I heard about. By the early 1990s, I had acquired substantial information about more than 40 companies that marketed health-related products. I concluded that all of them made inflated claims about both their products and the likely income from becoming a distributor. The Internet provides opportunities to investigate without buying distributor kits. Many companies provide substantial information on their Web sites; and many people who feel victimized send me their distributor kits when they quit. To date, I have investigated more than 150 MLM companies with health-related products.

Have you ever tried to earn a living as an MLM distributor?

No. I bought distributor kits so I could investigate the industry.

When do you plan to write a report about the company I am considering?

Detailed reports take a long time to write. I manage 22 Web sites with only volunteer help, and there are countless problems competing for my attention. I cannot predict my writing schedule. But I can—and do—warn about the general problems associated with MLM.

Why are you so skeptical about the MLM industry?

Every MLM company I have looked at has made false or deceptive claims in its promotional materials. The products that have nutritional value (such as multivitamins and low-cholesterol foods) are invariably overpriced and usually not needed. The products promoted as remedies are either bogus, unproven, or intended for conditions that are unsuitable for self-medication. In addition, none of companies I investigated gave a really clear picture of how difficult it is to earn money selling health-related MLM products. Person-to-person sales involves more overhead than ordinary retail selling, so that products are generally costly. Most supplement companies get their raw ingredients from the same bulk wholesalers and merely repackage them into brand-name products. To complete with retail outlets, MLM distributors must persuade prospective customers that their product is superior even though it is not and may even be identical to competing products that cost less. This requires misrepresentation. Moreover, people who like MLM products are likely to become distributors, which means that the original seller will no longer profit from retail sales to those customers.

People who don’t join during the first few months of operation or become one of the early distributors in their community are unlikely to build enough of a sales pyramid to do well. Fewer than 1% of new distributors earn significant income; and many who stock up on products to meet sales goals get stuck with unsold products that cost thousands of dollars. This strategy—referred to as “front-end loading”—is promoted with claims that it will push the new distributor to higher bonus and/or leadership levels quickly. In July 1999, the National Association of Attorneys General announced that complaints about multilevel marketing and pyramid schemes were tenth on their list of consumer complaints.

MLMs cause social harm by spreading misinformation. In addition, many “believers” pester everyone they know to buy their products or become a distributor. In many cases, this pressure strains or terminates friendships.

Don’t government agencies offer some protection?

Yes, but generally too little and too late. Government agencies do not have the resources to go after most of the wrongdoing they hear about. We index the cases we know about on the MLM Watch home page. Unfortunately, government action rarely results in recovery to distributors who have wasted their time and money. Real consumer protection would require policies that deter wrongdoing rather than stopping it after it is fully developed. The FTC could help a lot by forcing MLM companies to disclose the true income of their distributors. The requested data would include:

  • The total number of distributors involved in the company for at least three years (or since the company’s founding if less than three years)
  • The average incomes of all distributors who have signed up for a distributorship by percentiles, not just the ones deemed “active”
  • A “weighted” overall average income of all distributors so that the extraordinary high incomes of the small number at the top are not calculated in with vast majority so as to give a more statistically valid figure. (Thus the top 1/10 of 1%— and certainly the founding distributor— would be eliminated from any calculation of average income.)

In April 2006, the FTC proposed a
Business Opportunity Rule that I believe could make a huge difference in the marketplace. Among other things, it would require MLM companies that make an earnings claim to provide sufficient information to enable prospective buyers to make an informed decision about their probability of earning money. Rulemaking procedures commonly 1-1/2 to 3 years to implement. The Direct Sellers Association, most of whose members are MLMs, is campaigning to exempt MLMs from the Rule.

What should I do if I feel defrauded?

There are several things you can do:

  • Request a refund.
  • If your purchase was recent and made with a credit card, you may be able to persuade your credit card company to get you a refund through its “charge-back” procedures. Your monthly statement will tell how this is done.
  • File complaints with your state attorney general, the FDA, the FTC, and the Better Business Bureau. A report detailing the events may be sufficient to trigger an investigation; and the more complaints received, the more likely that corrective action will be taken.
  • If you possess a distributor kit that you no longer need, Quackwatch would be pleased to add it to its collection.

Also ask your Congressional representatives to support the FTC’s effort to establish an efftive Business Opportunity Rule.

Additional Information about me
Additional Information about Quackwatch

This page was revised on July 1, 2006.