Science

When MLM Pyramid Scams Multiply on Social Media

Scams are on the rise on social media claiming to be based on MLM. Traps that are easy to fall into.

Dollar House of Cards illustration @BelgaImage

You may have seen posts like this on social media like Facebook recently. A friend or ordinary person offers you super-attractive offers: natural products with exceptional properties, miraculous diet methods, or heavenly travel offers. In order to qualify, you are encouraged to join an MLM network (an acronym for “multi-level marketing” or “multi-level selling”), in most cases through private messaging. It all sounds tempting, but be careful, think twice before moving on. Because behind that innocent personal message, you could be trapped. This week, the French Ministry of Economy is warning the public about the many scams that abound on the Internet that start this way. Not because MLM is an illegal system per se, but because scammers impersonate MLM to trick their victims. The sector is poorly regulated and these scammers know this to easily cross the line of what is legal or not to the detriment of those who are not careful enough.

Beautiful promises then everything falls apart

So what’s the problem? After all, Tupperware has grown up on the MLM model for decades, offering commissions to those who sell its products to their relatives. Except that when it comes to the trap, it’s not just about making a living, specifically through door-to-door sales. Here you are promised a lot once you become an affiliate, but above all, you end up being encouraged to hire other people just like the person who made you join this network. Besides creating wealth x or y through sales or promotions, it is essentially about hiring. To encourage you to do this, there may be an additional request: bring the base amount when entering the network, for example, when obtaining a license with a starter kit (which will not be mentioned at all only in a personal message). It may be 100€ of registration, but much more. Or you will find that you will have to invest even more later. In this case, you can be sure that you will be motivated to look for new partners, in particular by bombarding social networks with images and videos. A real influencer! In any case, hiring recruits will earn you points converted into salary by the respective company. The more your network expands, the more you earn. As a rule, you receive a dream reward when you become “premium”, “elite” or “platinum”. In short, you are presented as if you were your own boss destined for huge success.

At the moment, everything seems to be going like clockwork … but that’s it! Because in the case of these so-called MLM scams, this system is de facto unsustainable, and for good reason: there will come a time when it will be more and more difficult to recruit, if only because there is not an infinite number of people on Earth. Suddenly, one day or another, everything collapses, or rather, this network created by society takes the form of a pyramid. This is the Ponzi pyramid principle. When this happens, everyone pays a fiddle, except for the people at the head of the company, i.e. those who earned the most (since they oversee the entire network, their salaries are necessarily higher than those of everyone else). The latter guarantee that there is nothing illegal in this, when in fact their products are only a “legal showcase” of a system based entirely on these connections. And talk so much that this time, it’s reprehensible!

When the trap closes

Among those who lost everything, we find the woman interviewed by Slate, here called M. By investing in her network, she managed to climb the corporate ladder to earn 6,000 euros per month and then 12,000 euros in three months. But one fine day, she discovers that her company has suddenly, without warning, changed the pay system. She felt the burn and wanted to leave the network and was not mistaken. In fact, the pyramid is collapsing, but it’s too late for M. Her company freezes her salary and she loses the 15,000 euros promised to her last month. His godfather also suffered from the fall of the pyramid, 30,000 euros did not suffer in his case. Worse, since taxes are based on his previous income, M. owes gigantic sums to the state. Since then, she’s been trying to get out of it as best she could.

The list of Ponzi schemes identified in Europe continues to grow. In Belgium, a Swiss cryptocurrency company was liquidated last month because it practiced “Ponzi scams,” according to L’Echo. In May, it was in Martinique that another such scam was noticed. More broadly, it was with the health crisis that these scams multiplied as many people were attracted to these obvious extra income opportunities. You may remember, for example, Jean-Pierre Fanguin, a young powerful man in a suit who promised to get rich in 2020. As Le Parisien told me, his business was a Ponzi scheme, in this case redirecting people to Melius, a trading and cryptocurrency training. Company. Later, JP Fanguin himself admitted that he was wrong. Without falling into controversy, he defended himself by considering himself “benevolent, even when extorting money.”

Excesses XXL “MLM Fraud”

In the US, this is the El Dorado of Ponzi schemes. Last June, the largest of its kind was dismantled in Las Vegas. He claimed many victims, especially among the Mormons. Amount at stake: $300 million scam. But this phenomenon is not new. In 2019, Vice media published a documentary about the victims of clothing brand LuLaRoe. Again, this was a Ponzi scheme with absolutely unsellable clothes. The trap, pernicious, allowed people to lead an extraordinary way of life, up to the fall.

To compound the problem, some of these Ponzi pyramids are almost sectarian in nature. This may, for example, take the form of an obligation not to criticize the company, and when the fraud is exposed, it is too late to criticize. But in general, the simple fact that this system is based on recruitment sometimes looks like aggressive proselytism towards relatives. In Anglo-Saxon countries, the media, such as the Australian national public broadcaster ABC, end up writing articles about “how not to lose your friends to MLM.” At the end of 2020, the social network TikTok said that it wants to actively fight against MLM on its platform.

So yes, MLM is not necessarily synonymous with fraud. As we have said, the Tupperware case illustrates this well. However, the opportunity to make money by investing in this medium (assuming it is legal) is very small. In any case, this is what economics expert Bruno Wattenberg told RTL Info. “In general, this model suits only manufacturers, not distributors. […] Many studies show that 99% of people online end up losing money. For those who are still interested in multi-level marketing, he warns: “Very few people will be able to generate income from this. who will maintain the house.

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