It always starts this way: A friend, family member, or trusted influencer say: “Hey, I have heard about an exciting opportunity!” They tell you it’s a lucrative way to earn extra cash and be your own boss. It sounds perfect, and you see the actual results with the way their lives have “transformed.” What they don’t tell you is that behind all that glamor, their “opportunity” is part of an MLM or multi-level marketing.
At first, MLM schemes seem harmless. You may even earn a return on your initial investment. Unfortunately, it’s a ticking time bomb, and those who join it end up losing their money, friends, and, above all, their sense of self-worth. According to the Consumer Awareness Institute, 99 percent of the people who join MLMs lose money.
Read on to find out what MLMs are, why they are seen as scams, what happens if you join one, and how to protect yourself from falling prey to them.
What is MLM
MLM stands for multi-level marketing. This is a type of business model where you earn money in two main ways:
- Selling “products” to others
- Recruiting new people to join
The new person you convince to join becomes part of your “downline.” When they sell something, you make a small cut. And if they recruit others, you may also get a cut from the new recruitments. So MLM has a pyramid-like structure, with those at the top earning more.
On the surface, you may see no problem with this. You sell something, build a team, and earn money from both. But there’s a catch. In MLM scams, you don’t earn from the stuff you are “selling”; you earn from recruiting.
These companies often masquerade as sales jobs where you’ll be selling skincare, essential oils, weight-loss teas, or health shakes. They may even ask you to pay when joining and earn a “starter kit” or “specialized training.” However, unlike a regular sales job, you don’t get paid for your work. You are paid based on the number of people you bring in to do the same thing you are doing.
MLMs are designed to benefit those at the top. For everyone else, it’s often a struggle even to regain their investment.
Why are MLMs considered scams?
MLMs are legal in most countries, including the US. However, most are highly misleading and operate in ways that hurt the people involved. That’s why governments, consumer watchdogs, and many expats advise people to avoid them.
Remember, even though they share similarities, MLMs aren’t pyramid schemes. Pyramid schemes are illegal in most countries because they only focus on the recruiting part. You earn money by finding more recruits who are willing to pay to join. However, to pass the sniff test and appear legitimate, MLMs include something to sell.
One famous case of MLM fraud is the OneCoin company, launched in 2014 by Ruja Ignatova, also known as the “Crypto Queen.” She claimed OneCoin is a new form of Bitcoin and promised people that they could get rich by joining and recruiting new members.
Millions worldwide paid money to acquire the promising cryptocurrency, encouraging their friends and relatives to join in. However, it turns out that OneCoin wasn’t a legitimate cryptocurrency. It had no real value and was just a classic pyramid scheme disguised as a once-in-a-lifetime tech opportunity. In 2017, the scheme collapsed, and the Crypto Queen and other top members disappeared with billions of dollars.
So most MLMs are considered scams because, although they offer products, these products are usually overpriced, difficult to sell, or not the primary focus of the business. In short, they seem like legitimate businesses but operate like scams.
What happens when you join an MLM scam?
MLM scams have mastered the art of selling the dream. To draw you in, you are shown photos of top members working from the beach, enjoying top holiday destinations, and driving luxury cars. At first, it’s exciting, but soon reality sets in. Here’s a step-by-step breakdown of how MLMs work:
- You get invited by someone you trust, usually a friend, family member, or trusted figure, who presents a new “business opportunity” that promises quick money.
- You pay to join. Signing up usually involves paying for “training,” a “starter kit,” or an “exclusive or tiered membership fee.” You’re told this is just a small price for big rewards.
- You’re encouraged to believe in the dream. The company shares motivational videos, success stories, and learning materials to help you progress. They claim that if you “believe” and work hard, you’ll also succeed.
- You start selling. This becomes frustrating because you will be selling expensive products that people don’t need or can obtain for free or at a lower cost elsewhere.
- You’re pushed into recruiting once the frustration sets in, and you’re told that the bigger your team, the more you’ll earn. So, you start inviting your friends or family to join.
- You “invest” more money. Now that you are hooked, you may be told to keep renewing your membership, buy more expensive courses, or subscribe to a higher “exclusive” tier. The costs add up quickly, but you’re still hopeful.
- You feel stuck. After a while, you’ll start realizing this was a scam all along. It’s hard to admit it isn’t working. Plus, you might feel guilty for asking others to join or ashamed that you’ve been losing money.
For many people, instead of the financial freedom they had hoped for, MLMs bring stress, debt, and disappointment. The system isn’t designed to benefit you, and unfortunately, most people are too ashamed to speak out about it. The scam morphs into another beast, and the process begins again.
7 reliable ways to avoid falling for MLM fraud
1. Know how MLMs work
Business opportunities that ask you to sell and recruit are almost always MLMs. Understanding that companies that focus on “building a team” are usually fraudulent can help you spot the signs early.
2. Research the company
Even if a company is genuine, don’t rely on what the recruiter tells you. It’s always advisable to research it and see if it’s the best fit for you. This advice is even more critical when a company promises quick riches. Search for online reviews, complaints, or warning signs. Typically, searching the company’s name followed by the words “scam” or “FTC warning” yields real-life stories from people on YouTube, Reddit, or TikTok who have been burned before.
3. Ask the right questions
Don’t be afraid to ask the recruiter if you are required to pay for membership or buy products to join the program. Is recruiting the main way to earn money? And how much does the average member earn, not the top 1 percent? If the answers are vague or you are mocked for asking, those are red flags.
4. Think before spending
Nobody is in the business of making money for you. So stop and ask yourself: Would I buy this product if someone else were selling it to me? If the answer is no, don’t spend your hard-earned cash.
5. Trust your spidey-senses
It always starts this way: “Please, a friend, family.” There’s always that gut feeling that these flashy cars, luxurious getaways, and playboy lifestyle are a way to pressure you to join fast. You’re right, so sleep on it, and don’t let anyone rush you into a financial decision.
6. Know you can say ‘no’
You don’t owe anyone a “yes.” Remember, even if it’s your sibling or friend asking, you are allowed to say: “This is not for me.” A real friend will respect your decision.
7. Look for real income options
There are proven ways to improve your skills and earn extra income. You can join legit online courses, find freelancing opportunities, sell handmade goods, become a tutor, or find a part-time job. These options don’t require you to spend money to join a company, buy expensive products, or recruit people.
Takeaway
Who doesn’t want flexible hours, fast income, and a chance to build their own business? That’s what most MLMs promise to offer, but soon, these promises don’t match reality for most MLM “investors.” Only a few benefit, while the rest are left struggling with debt, pressure, and regret.
MLM scams, such as OneCoin led by the so-called Crypto Queen and FTX by Sam Bankman-Fried, promised to change the lives of people, only to wipe them clean. People lost their entire savings, pensions, or loans they borrowed in the hopes of reaping huge benefits. There are similar stories worldwide, serving as a reminder of the harsh reality of sophisticated new scams.
Remember that financial independence doesn’t come from buying into hype. Growth, whether it’s in money, career, or confidence, takes time. Once in a while, there may be outliers, but that’s the exception, not the rule. So, stay curious, ask questions, and trust your instincts. You deserve better than a system that leeches from your hope and leaves you lonely, devastated, and hopeless.
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