Warren Buffett

Today it can be very difficult to see the difference between a legitimate MLM company and a pyramid scheme. In my opinion, many of the largest MLM companies are functioning as pyramid schemes: Amway, Herbalife, Nu Skin. The dean of the College of New Jersey School of Business Bill Keep has written an open letter to Warren Buffett. He has asked Warren Buffett to clear up the confusion.  Warren Buffett owns Pampered Chef a MLM company.

Here are some highlights from his letter.

We have a “business model” affecting a fair percentage (8.5%) of the U.S. adult population that can actually be a fraud that structurally guarantees loses for the vast majority of participants. The fraud transfers small amounts of wealth from large numbers of participants to the benefit of a minuscule percentage.  The lead trade association resists any effort to more clearly define the business model or increase transparency, and the lead regulator admits that distinguishing a pyramid scheme from a legal MLM can be difficult.  Meanwhile these schemes continue to victimize people looking for a path forward to change their futures.

I ask that you consider, as an owner of an MLM company, the value of having clear and public standards that differentiate a legal MLM from a pyramid scheme.  As part of this consideration, I ask that you reflect on why people choose to participate in an MLM and the harm done by allowing them to become unsuspecting pyramid scheme victims. Should you conclude that such standards are important to protect consumers and investors, I ask that you publicly address this issue.

– Source Bill Keep’s Letter to Warren Buffett 

Here are my thoughts on this letter.  It will fall on deaf ears.  Here is why it will fall on deaf ears.  The Direct Selling Association and the owners of MLM companies have successfully fought to have themselves exempted from the FTC’s Business Opportunity Rule.  A rule that requires them to disclose key information that anyone would need before they join a business opportunity.

In my opinion, they have done this so that they can continue to keep people in the dark and scam them out of their money. This is wrong.

Here are the things MLM companies have fought for you to NOT know before you join one of their business opportunities.

Has the company or any of its key personnel been the subject of a civil or criminal action, including any FTC Rule, involving misrepresentation, fraud, securities law violation, or unfair or deceptive practices, including any FTC Rule, within the past 10 years?

Does the company offer a cancellation or refund policy?

Has the company or its salesperson discussed how much money purchasers of this business opportunity can earn or have earned? In other words, have they stated or implied that purchasers can earn a specific level of sales, income, or profit? If the answer is yes, the company must attach an Earnings Claims Statement.

The company must provide you with contact information for at least 10 people who have purchased a business opportunity from them. If fewer than 10 are listed, this is the total list of all purchasers. – Source Business Opportunity Disclosure Document

Here is a video that covers what needs to be disclosed to people under the FTC Business Opportunity Rule.

FTC Busniness Opportunity Rule Video