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Shaking the Money Tree

Illustration by Winston Smith From Amway to Equinox, multilevel marketing schemes have won 7 million devotees on the promise of unlimited wealth and freedom. But when the numbers don't add up, distributors lose more than their dreams. By Ami Chen Mills MY EXPERIENCE with multilevel marketing began with Mark, the classified sales rep in a small newspaper office where I once worked. After an unremarkable stint at an ad desk, Mark announced that he had struck gold--and was leaving us to make a fortune in his own business. He would work for the Boss Man no more, and we who stayed behind would regret our miserable lives when, in a few years, Mark* tore himself away from the country club to visit, and paid for lunch with a tiny fraction of his $50,000-a-month salary. "You'll be sorry," he said on strolls to and from the taqueria for our usual low-budget burritos. "You'll see." Mark was suffering from an acute case of Americandreamitis, the symptoms of which first surfaced, as he now tells it, at a recruiting meeting in Santa Cruz for Equinox distributors. For two months, the only language Mark could speak was the language of Equinox International, an ostensible environmental and health company which produces herbal supplements, water filters and other sucking and sifting gadgets to ward off air- and water-borne toxins. Yet the miraculous Equinox products were not the main event for Mark. Rather, Equinox and its executive progeny had convinced Mark that if he did not sign up to become an Equinox distributor right away, he would be squashed flat by the thundering steam train they call the Opportunity of a Lifetime. When we coworkers learned that Mark had already maxed out two credit cards to fly to Equinox "training seminars" in Portland, Denver and Hawaii, when we learned Mark was preparing to take out a $5,000 loan to buy into the company as a "manager," we each decided to take our turn with Mark, to talk some sense into the boy. My own conversation with Mark took place in the office after hours, and went something along the lines of, "So, are you sure you can make all that money? " "Oh yeah, no problems." Mark looked at me askance, considering something, then retrieved a magazine from his desk. "Look at this," he said, flipping through pages filled with pictures of Equinox founder Bill Gouldd. (The extra "d" was added by Gouldd according the advice of a "spiritual adviser." Mark told me it stood for "dollars.") There was Bill Gouldd next to his sports car collection. There was Bill Gouldd at his expansive mansion on a hill. There was Bill Gouldd with a buxom blonde at his side. According to the magazine, there was no doubt that Bill Gouldd was making money. My next approach was to question the fundamental premise of multilevel marketing, the sketchy business of selling not a product, but a dream. The conversation was making Mark uncomfortable. I saw a flash of panic in his eyes before they glazed over. Then he said this: "They told us there'd be ripe apples who are ready--who see it. They told us there'd be green apples that weren't ripe yet. And they told us there'd be rotten apples. ... You're a rotten apple," he said. There was an uncomfortable silence. I smiled thinly and suggested we both go home. What about the product? Does anyone pay attention to what the distributors are selling? Multilevel marketing opponents tell all online. Multilevel Madness MULTILEVEL marketing, according to practitioners, is poised to take over the world. According to their predictions, multilevel, or network, marketing will emerge as the dominant marketing system as the dinosaur called corporate America (the "real" pyramid scheme) runs out of prey. While some people make money in multilevels, many more lose out--sometimes big--in an industry that walks, talks and smells like a pyramid, but keeps insisting that it's not. Despite scores of investigations against MLMs like Destiny Telecomm and lawsuits against Amway, Nuskin, Herbalife, and Equinox, multilevels continue to thrive, with limited regulation in sight. Multilevel marketing companies, or MLMs, as they are called in industry parlance, operate under their own set of guidelines. In 1979, the Federal Trade Commission determined that although the multilevel company Amway engaged in deceptive practices, as long as profits were made through the sale of product, the company could continue to operate within the law. As a result, MLM companies have developed extensive product lines which they sell to new distributors who are, in turn, expected to retail the product to others, earning a small profit. If the whole thing ended there, MLMs would be confined to the relatively innocuous world of direct sales with companies like Kirby Vacuum and Avon. But in a multilevel marketing company, to make the big bucks, distributors must also recruit others into their distribution network, or "downline," and receive commissions on the wholesale sale of product to members of their downline. You tell two friends, and they tell two friends, and so on. Top executives in an MLM are paid by lower-ranking distributors, from the bottom up, rather than the other way around. Ideally, and if dreams come true, you end up sitting fat and pretty on top of a huge pyramid of distributors, all of whom are shelling out a percentage of their incomes to you. MLM distributors claim fantastic salaries ranging from $1,000 to $100,000 to even $1 million a month. Long after they've quit the game, "residual" income, they say, will see them through lengthy and luxurious retirements. (According to company disclosures, Equinox distributors make an average $756 per year, or $63 dollars a month. Amway distributors, $88--before product purchase costs.) MLMs sell everything from airline tickets to shark cartilage to Super Blue-Green Algae. The companies cater to graying baby boomers by offering a plethora of anti-aging, herbalish and miraculous-sounding antidotes to death. Many play on fears of environmental degradation while offering up the pristine egg of perfect health and eternal youth. In so doing, multilevel marketers have fused two seemingly incompatible concerns: an ostensible passion for health and environmental protection with an unabashed lust for money--and lots of it. In the current atmosphere of corporate disloyalty, even white-collar executives are turning to MLMs, hoping to build their nest eggs, and MLM distributors now top 7 million in the United States alone. Since the Amway decision, MLMs have grown and operated largely unchecked. Although the Wall Street Journal and other publications have documented the worst excesses in the industry, few legislators (with the notable exception of then-Senator Walter Mondale, who introduced anti-MLM legislation in 1974), attorneys general or publications have been willing to take on the essential concept of multilevel marketing. Meanwhile, this skeletal renegade, this odd capitalist phenomenon of the late 20th century is staking a claim in the global market, as well as on the bank accounts of many who can ill afford the loss. Equinot ONE YEAR LATER, Mark has quit Equinox. At the peak of his Equinox career, he spent upwards of $2,000 for a weekend at one of Bill Gouldd's Advanced Marketing seminars. "Now," he says, thumbing through photos of Gouldd in his old manual, "I'm just going, 'You asshole.' " After four months as a distributor, Mark had convinced one person to go to a seminar, and paid for half the guy's airfare himself. Later, his recruit's car was impounded and his recruit arrested. "I'm like, 'I'm really doin' great--my sales force is in jail. We're going places!' " Mark never recruited anyone into his downline ("I had a lot of people blow smoke up my butt"), and when he told his sponsor he wasn't going to sleep with her anymore, "She was the raging bitch." Soon, he was giving product away wholesale, then free. "I got into survival mode. I was losing my ass," he says. Today, Mark is still paying off $10,000 in credit-card advances and a personal loan with a 20 percent interest rate. He may have gotten off easy. A group of 30 people in Yakima County, Wash., are suing Gouldd for financial and emotional losses amounting to $1.2 million. Other people say they've lost family members to Equinox. Charles*, an artist in Connecticut, says his 29-year-old sister Katie and her husband, Mike, joined Equinox more than two years ago. In a family of 11 children, Charles says, "Katie was my closest sibling. We talked on the phone two or three times a day. We biked across the country together." Now, the two rarely talk. He says Katie has begun to tremble and shake during conversations about Equinox. Once, Charles broke down crying, telling her, "I feel like I've lost my sister." He claims she yelled at him and told him not to exaggerate. Charles has since contacted cult specialists for help. According to him, Katie and her husband are running from collection agencies, driving unregistered vehicles and throwing bills in the trash unopened (which the family found). After hitting everyone up for loans and credit cards, Katie abandoned her family almost completely. Charles believes she now owes more than $100,000. In her notes from one of the company's seminars, he found these scribbled words: "There are two kinds of friends: true friends and false friends. True friends support Equinox. False friends don't believe in Equinox." His family, Charles says, "is afraid that when she hits bottom, she's going to hit hard. My mother is afraid of suicide--she's afraid my sister is going to go off the deep end." Bob Hanneman in Savannah, Ga., contends that for his 51-year-old brother, Lyle Lee Claude, joining Equinox was "the last straw" that pushed his brother over the edge. After losing his job, Lee Claude--known as "Bud"--ran up $10,000 in debts, borrowing from family to invest in Equinox and Advanced Marketing seminars at the encouragement of Rick Fritz, an Equinox "heavy-hitting distributor." At the end of 1994, facing jail time for missed child-support, Bud Hanneman shot himself in an apartment he was renting in Florida--for which he was months behind in rent. Although Bud had prior personal and legal problems, compounded by a failed relationship and a no-contest plea weeks earlier to a prostitution solicitation charge, Bob Hanneman says, "as far as I'm concerned, Equinox played a tremendous part in my brother taking his own life. They fed him all that bullcrap to rise him up and kick him in the butt again. He got flim-flammed and couldn't deal with it. And I would like the opportunity to sit down with Bill Gouldd eyeball to eyeball and give him my opinion on that." Other people who were close to Bud say he was a troubled man well before joining Equinox and that Equinox was not a factor in his suicide. Equinox spokespeople argue forcefully that Equinox played no role in Bud's suicide. Responding from corporate headquarters in Las Vegas, Sue Stitt notes that Equinox undertook a "thorough investigation" into events leading to the death, including examination of police reports, and interviews with his roommate and others. She says Equinox had nothing to do with Hanneman's death. "It was reported," she concludes in her written statement, "that Equinox was the only bright spot in his life." In the Equinox statement, which threatens legal action against this paper, Stitt recounts Hanneman's legal and financial troubles, concluding: "We believe that Bud Hanneman's suicide was the tragic result of his inability to solve personal problems that pre-dated his association with our company." The Tampa Police Department closed their investigation and found no basis for criminal prosecution against any parties. Yet Bob Hanneman--who, along with his father, loaned his brother money to invest in Equinox--stands by his view. "For Bud, Equinox was his last opportunity to get himself straight. They left him waiting for the train--and the train done left." According to Stitt, Equinox is not responsible for the "personal business decisions" of any of its representatives. She claims distributors are told that not everyone makes money in Equinox and that Equinox's liberal refund policies serve as a safety net. "It takes a lot of blood, sweat and tears to be successful in our company; not everyone is going to make it," Stitt says. Yet ex-distributors claim very few people make money in Equinox, and some will testify in court that they were pressured by "top income earners" in the company to max out credit cards, borrow money, sell possessions and purchase large amounts of product. They say Equinox refund policies are tricky and that they were pressured into signing forms which said they had sold 70 percent of their product before buying more. One successful former Equinox distributor says he saw almost everyone beneath him lose money. Because each distributor is compelled to maintain a rank in the company (from "manager" to "international marketing director") by moving tens of thousands of dollars in wholesale product, he says, "people get to the point where they will sell their grandmothers." And the advice given to new recruits to "fake it till you make it" dictates that Equinox representatives give off the appearance of wild success. "There were people sleeping in their leased BMWs," says Jack Baugher, who ran an Equinox office in Yakima, where, "out of 500 people, there was not one success story." The television show 20/20 recently aired a segment on Equinox, charging the company with defrauding distributors of hundreds of thousands of dollars. "There was a time," says Washington plaintiff Hugh Sinclair, "when I would have gladly given up my marriage and everything else I had in order to follow this guy. He can take 2,000 people and roll them around in his fingers like dough." Baugher, who joined Equinox in 1994 when Skip Meyer, one of Equinox's leading distributors, handed him a normally expensive "supervisor" position--which, Baugher claims, "didn't cost me a dime"--says Gouldd is "psychotic, disgusting and despicable." In a live recording aired on 20/20, Bill Gouldd rebuked a woman who interrupted him during a seminar with the following tirade: "Why don't you shut the fuck up before I knock you out? ... You stupid bitch, you fucking disrespectful bitch." This was met with enthusiastic cheers from the audience. But this is America, where you can't keep a rich man down. Following the 20/20 segment, Gouldd introduced an 800 hotline and video to counter its charges. After hiring top PR firms--including Hill and Knowlton--enlisting the support of former baseball star Dave Parker (who joins Kenny Loggins and Ted Danson as past glam spokespersons for Equinox), and contributing, with much fanfare, to the Children's Defense Fund, Equinox continues to plot its growth, with 400 offices across the United States, a reported yearly sales volume of $200 million, and plans to expand into telephone and beeper services. Belly of the Beast THE CLASSIFIED AD stated, simply and boldly, "NO BOSS!!" Tim*, a "director" in the company, responded to my call, informing me that Equinox was exploding with growth. "We've blown away any other company. The only company that comes close is Microsoft. Have you heard of them?" he asked. Two days later, I am seated at an Equinox briefing watching a man by the name of Steve Smith--who, with his wife, Laurie, owns the lease on the San Jose office--pump breath spray into the flame of a lighter to demonstrate the product's torchability compared to Equinox's Mint-T-Fresh spray. The "Equinox" office in San Jose is located at 14 Plaza West, in the South Bay Office Tower on Tisch Road. The sign on the door reads, "Environmental Solutions Marketing Group." Distributors, as independent contractors, are not employees of Equinox, which exempts Equinox from paying taxes and insurance, worker's comp and other benefits to its sales force. The office is sleek and buzzing with distributors, each of whom must pay $500 in monthly rent for the use of a small black desk, and must pay for their own phone lines, business cards, brochures and sales aids. Desks are set in offices which frame the central briefing area, decorated with a lone Sierra Club poster and a gold lamè-draped product display case, a large whiteboard, and write-on-wipe-off markers, also sold by Equinox to distributors. The room is darkened for an introductory video, during which Bill Gouldd is introduced. Gouldd is a fleshy-faced man with hair that seems to change with the seasons. Sometimes his face looks plump and sometimes tight and strained. "Eight years ago, I was homeless," he says now. Eight years ago, Gouldd was a "heavy-hitting" distributor for National Safety Associates. But no matter. According to Equinox mythology, sometimes Gouldd was the victim of a debilitating disease, sometimes the victim of unethical managers at competing companies, and sometimes a lowly stereo-store worker. Gouldd continues, warning, "To question our products, to find out what's wrong with them, would be the wrong thing to do." With the close of the video, the lights go up. It's time to separate the wheat from the chaff: One, it's not for you; two, you'll "try it"; or, three, you "see it." Someone passes out tiny paper cups filled with something that looks and smells like urine, but is actually apple juice that's been spritzed with Equinox Essence of Life mineral solution. A nicely dressed young man seated next to me gives up pitching a nervous-looking, lanky recruit who keeps insisting he's "just a plumber," and turns to me. It's Tim. We chat. I ask Tim how much money he makes, as a director. He won't tell me, he says, until I sign an application. "But I can tell you that I was making 45 grand as a phlebotomist before I came here." As potential recruits file out, we're left with the majority of the briefing audience, mostly young people milling around, smiling up a storm. Tim hints that I may be able to meet Laurie Smith, who is currently looking inaccessible on the phone in the largest office adjacent to the briefing area. After some waiting, Laurie, dressed in a pink miniskirt and gold shoes, comes out with the phone in her hand and tells me that she loves the company because the women are not competitive, not like, you know, how you'd go to the beach with a bunch of fat girls to look better in comparison. I'm not relating much to this, and she finally says, "Well you seem pretty smart, and I'm sure you could go far in the company." Then her phone rings and she's off. All That Glitters AT THE TRAINING center, I am introduced to men with Italian shoes and diamond rings, national heavy-hitters. There is a constant sense of impending wealth and, in satellite feeds, the distant promise of "personal time" with Bill Gouldd at his Colorado ranch, on fishing and golf trips, joking around with the guys, living the good life. One of these feeds booms in so loud, the woman next to me covers her ears with her hands. Finally, I plug mine too. No one turns down the volume. It's Bill Gouldd at his exclusive training center in Colorado where the newest, most successful distributors are invited. Bill rides up on horseback and, after saying howdy, compares new distributors to a horse which needs to be reined. "Don't come in thinking you have to know everything," he cautions. Gouldd proceeds with a question-and-answer session during which he and the young distributors, wearing Equinox T-shirts, perch atop a sunny stone wall. There is an odd back-and-forth over the first question, during which Gouldd forces a young distributor to rephrase his question over and over because he's apparently not getting it right. The girl sitting next to Gouldd giggles nervously. We should be quiet and listen to Bill Gouldd because, as he says, "this company is as close to perfect as you can get." Successful distributors on videos and in trainings shrug their shoulders as if they can't figure out how they've done it, except that they religiously attend Gouldd's Advanced Marketing seminars. Each feed ends with seminar dates and the number for the Equinox travel agency. Seminar fees run from $300 for "Basic Building Blocks" to $2,500 for Bill Gouldd's "Journey Beyond Perception." Distributors are encouraged to repeat seminars. As Steve Barron, an international marketing director from New Jersey who speaks after the screening, says, "If you needed $500 for a family emergency, would you find it? ... And don't say 'But I have kids.' Don't use your kids as an excuse." After describing in detail his new home in San Diego, and how great it feels to be rich, Barron ends with this: "The only way you fail in this business is when you quit. If you stay in, there's no way you won't be successful." Later, Tim and I meet at his rented desk to discuss my goals. This is where he starts hinting around that "reps [base-level distributors] don't make that much money." The real money is at the management level, the first level at which anyone makes commissions on downline sales. "Do I really have to do that?" I ask. "Well, no--it's a matter of if you see it or not," Tim says. "When I first got in, they showed me that by using somebody else's money, credit cards, I could make a profit." I mention the 20/20 show, and Tim explains: "Do you know about 20/20?" he asks. No, I say, what? "Well, basically, 20/20 goes out and finds good companies and then tries to bring that company down. It's too bad the media does that." Basic Mental Blocks I'M AN HOUR early for the Basic Building Blocks Seminar in Sacramento and pull into a crowded Denny's to fuel up on eggs and French toast. I'd heard that the seminars don't allow breaks for food, or even to go to the bathroom. Thinking ahead, I take it easy on the coffee, too. Inside the convention center, hordes of attractive, young and well-dressed people mill around the registration area where Madonna and Michael Jackson are blasting from speakers. The girls at the registers are dancing in place, bopping up and down as they tender change. Occasionally, one of them lets out an abrupt, high-pitched "Whoo-hoo!" for no apparent reason, and then the rest join in whooping and giggling and dancing around. The woman at my register is smiling and nodding her head to the beat. The girl next to her says something about Bill Gouldd--maybe he'll show today--and there's a rush of excitement and hormones and my cashier tells me, "We heard he was in Davis last night," in a proprietary tone. The other girl says, "No that's just a rumor. But he did say he was going to do two Basics a month. You never know!" More giggling and soft squeals trail these rumors of sightings of the Equinox Messiah. The conference room is huge, with enough chairs for almost a thousand, and a few dozen people dance vigorously on stage. Translators are setting up for Mandarin and Japanese services. People who are not on stage are dancing at their seats. Here and there, a disco train of dancing distributors winds its way through the aisles. After some wandering, I find Tim, who introduces me to a distributor from Southern Cal. "Is this your first Building Blocks?" the man asks me with a grin. "Geez, you look like a deer in the headlights!" A stringy-haired woman who's been dancing frantically runs up to us. After greetings are exchanged, she exclaims, "I'm so excited to be here! God, I really needed this. I bought into manager at $5,000, and nothing's happening! So I really needed this. It's been since January!" When the training starts, about an hour late, we are introduced to Rich Von, one of Gouldd's closest associates, based in San Jose, and Greg Ammerman from the East Coast. The two men work the stage like professional comedians, diamond rings glittering on their fingers as they pace back and forth, jumping from topic to topic with whirlwind speed and encouraging audience participation with an endless series of tag questions: "Y'all got that?" "You with me?" and "Does that make sense?" Each of these questions is affirmed by enthusiastic murmurs from the audience, applause and raised hands. The working image for "Basics" is an infant playing with a set of blocks. Von, a heavyset, all-American-looking man with the same baby-face as Gouldd, speaks first. He tells us that as infants our brains were empty, but now we've been programmed with expectations. "Expectations is the reason you are who you are," Von says with some derision. Drop your programming for the seminar, he says: "You're just like an empty cup and we fill you up all day." Despite all the water imagery, Von says there will be no bathroom breaks. There are certain off-limit topics: "We're not here to talk to you about the rain forests. Dollar bills is what influences change. So don't ask about environmental issues." The rest of the seminar is spent convincing people, between a smattering of sales techniques, that they've made the right decision by joining Equinox. When the cold fingers of reality threaten to snap you out of your Equinox dreams, Von and Ammerman are available for a fee to conjure them back, with a joke and smile. To this end, Von warns against logic--"What sells is feeling and emotion. Facts tell, stories sell"--and encourages the audience to remember what it was like when they first joined by comparing the feeling to that of buying a new car. "You felt good when you bought it, and so did Equinox when you signed up!" To maintain that positive feeling, the dedicated Equinox distributor must guard continually against "OPO," other people's opinions. "To me, it's sad how influenced we are by what other people think," Von laments. When a distributor is knocked around in the peaks and valleys of hoping-to-get-rich and losing-money-fast, Von offers counsel: "When you're in a valley, run, drive fast to the nearest training center and be around people who are doing what you do. Feel like a human being again." Success is always just around the corner. "If I stayed [in Equinox] for seven years, how many people would think I'd have a story?" Von asks. An Equinox "story" is a success story, a rise from rags to riches, from obscurity to--dare you even think it?--membership in the coveted inner circle of Bill Gouldd. Greg Ammerman, a wiry, edgy Jerry Lewis lookalike, jumps up as Von disappears stage right. Ammerman is a ball of fire, a great comic actor, actually. "I believed everything when I saw that first presentation, I believed. So many people don't believe anymore," Ammerman says with a sad shake of his head. Throughout the day, we are told to put two, five, seven years into the company. Then Gouldd beams in with the star support of Dave Parker. "If you start when you're 30, imagine where you'll be in ten years!" he crows. So, as Equi-logic has it, for ten years, don't listen to friends, don't even watch TV. "Turn off the TV. Talk shows, news shows," harumphs Gouldd in a thinly veiled reference to 20/20, "are produced by the slugs of the earth." Abe Al, a 23-year-old IMD out of the San Jose office, recruited recently into the fast-track of Equinox hucksterism, is introduced. Al's job is to get us back to Advanced Marketing trainings, where beleaguered rich folks like Rich and Greg "have big enough hearts ... to take their weekends to do, and we don't take advantage of it! We've got have respect, respect, respect." From my chair I make a rough head count, and calculate that Gouldd and Advanced Marketing are pulling in roughly $225,000 on this cheapest of seminars alone--and acting like it's a favor to these people. But the worst is yet to come. On stage, Von is talking about the "integrity, honesty and focus" of Equinox, a company where it's possible to really trust the leadership. Suddenly, his mood grows deathly serious. Von pulls up a chair. In his hand are a number of registration forms and his baby face turns grave. "Some of you snuck in here today," he says in low, paternal tones. At this, my heart skips a beat. Von then embarks on a lecture about lying and cheating. Some people, he says, claimed to have lost their name tags and procured new tags to get in free. He holds up a form and reads off a name. "Is Doug Kamdar* here?" There is a pregnant silence. Von milks it. "Look, you're not in trouble, just raise your hand." No hand is raised. Now it's snitch time. "Everybody look at the person on your left's name tag. Any say Doug?" A thin woman's voice pipes up, "Over here." A trembling Doug reluctantly stands up and begins explaining furiously, "We left our name tags at home, we forgot ..." Von interrupts. "It's OK. You really did lose your name tags. I'm using you as a good example." Von goes on to tell those who have snuck in that they have five minutes to report to the back. And we should all be glad Bill Gouldd isn't here. Up the Downline BILL GOULDD'S operation was perfected after years of training in a half-dozen multilevel marketing companies, starting with Signature International in the early 1980s, and then Consumer Express, which later evolved into Nutrition for Life, now run by Kevin Trudeau, who plead guilty and was convicted of credit-card fraud and larceny in the early '90s. But Gouldd made a lateral jump, making his way to National Safety Associates, a water-filter company, where Gouldd developed many of the strategies he uses today. Gouldd's recruitment tactics at NSA netted him a civil penalty of $75,000 in California, where he is barred from "misrepresenting earning potential and ease of making sales" in any company. In MLMs, the best place to be is at the top, and in 1991 Gouldd founded Equinox International-- modeled to some degree after Amway but with less Christianity and more sex appeal--and an adjunct multimillion-dollar seminar company. Gouldd, Rich Von and Rick Frisk, among others, also face a civil suit in Washington for running a "chain-distributor scheme." In Las Vegas, the Better Business Bureau reports over 100 complaints against Equinox. Rachel Bernstein, a counselor for the Cult Clinic in New York, says the hotline gets three or four calls a month from concerned distributors or friends. According to her analysis, "Bill Gouldd is a narcissist. He has emotional needs he doesn't know how to meet, so he turns to power--he needs to be revered and feared. His message is 'Should you not do what I'm telling you, that's it, you're finished.' I've seen people crumble." Still, she says, "What Equinox is doing is not atypical of MLMs. We get a lot of calls about Amway, too." While almost 50 percent of MLM representatives make less than $500 a year, the industry depends on hype to the contrary, thus the constant seminars, the group-bonding experiences, the dangling carrot of an obscene income, ever out of reach. Sacred Cowardice DESPITE A TRAIL of distributor tears, MLMers claim high moral ground. MLM guru Burke Hedges writes in his seminal MLM book Who Stole the American Dream? that corporate America and the government have stolen the American dream. The only thing that can save us is MLM. "If there ever was a pure and perfect, democratic example of the best of free enterprise, it's network marketing." MLMers wax philosophical about beating bureaucracy and the middlemen. Yet there is a crucial distinction between direct selling and multilevel marketing. Multilevel marketing relies on wholesale sales to distributors. Because of its trade in wholesale inventory, MLM products are generally not market-tested. Because an MLM company does not invest in advertising, neither does it need to bother with meeting guidelines around false advertising. Because distributors are independent, they can generally say whatever they want about a given product. And, because MLM companies can distance themselves from the actions of their distributors, they are shielded from legal action. Most news articles and attorneys general will criticize the actions of multilevel companies, but stop short of indicting the basic premise of the industry. Money magazine wrote a critical, investigative article in 1987 which came close. "While some multilevel firms are legitimate, scores of them are not." Money went on to name Amway and Shaklee as two "reputable" companies. In August, Amway settled a massive class-action suit from distributors who say they were misled. Mostly, people seem confused about the difference between direct sales and network marketing. Rather than just sell product directly, MLM distributors are sold on the hope for downline commissions. Recruits hope to recruit others to build "legs," thus creating a pyramid, with a pyramid's law of averages. Success for everyone is impossible within a multilevel structure. There aren't enough human beings in the world to recruit. Apply the rules of exponentials to one hypothetical network in which each recruit only recruits two people, and within 30 generations the entire population of the world has been recruited twice. Actually, the market interested in joining a network is small--perhaps 15 percent of the population--which leaves late-coming distributors in the dust. The Direct Selling Association, which represents roughly 100 network marketing companies, reports that there has been no national legislation introduced in the last decade to curtail MLM activities. Enforcement is left to the states, which slap MLMs with fines. A recent multi-state investigation into Equinox led by attorneys general from 14 states resulted in $455,000 in charges to Equinox for investigation costs and an "Assurance of Voluntary Compliance" from the company, with promises of better future behavior. As Equinox spokesperson Stitt says, "99 percent of the agreements agreed upon were things we had put in place already." And yet, as Florida Assistant Attorney General Jack Norris points out, "If they were following procedures, we would not have pursued a major investigation." Norris admits MLM prosecution is difficult: "These guys have good attorneys. And there's not a lot of case law on multilevel companies." In 1970, the state of Wisconsin promulgated one of the most severe regulations restricting MLMs. Bruce Craig, an assistant attorney general there, helped write the code, which, he says, "basically made illegal any company in which you join for the right to recruit others in a structure which has no mathematical limit." Nine years later, Craig says, the FTC came up with the Amway decision, which made law enforcement more difficult. There is some hope in a recent federal appeal against an MLM company called Omnitrition. The March Omnitrition ruling includes definitions of illegal pyramiding similar to those in Wisconsin. Nonetheless, multilevel marketing seems to be on the rise. Journey Beyond Deception LIKE THE GAMBLING industry, MLMs are seeking to gain credibility in the halls of Congress. The Direct Selling Association, of which both Equinox and Amway are members, contributes hundreds of thousands to Republican state election committees, as well as to Democratic and Republican congressional candidates. The MLM giant, Amway, is one of the most generous, multimillion-dollar donors to Republican causes, Republican representatives and election committees. Presidents Ronald Reagan and George Bush have spoken at Amway rallies about the glory of free enterprise. Bill Gouldd, for his part, has contributed thousands to Republican election committees, including a $5,000 donation to Orrin Hatch's Capitol Committee. Greenpeace, on the other hand, returned an Equinox donation, along with an order to cease using its name at Equinox functions. Multilevel marketing appears to have integrated itself into American capitalism, heralding itself as the antidote to the cruelty of the capitalist-sponsored state system while stoking the engines of that selfsame system. Perhaps the logical extreme of an economic system which, by its own admission, is driven by self-interest is the development of companies for which greed, or at least the love of money, is the platform, the marketing tool, and the very product itself. According to a series of articles over the last year in Harper's magazine which documented a rise in corporate riches, "between 1977 and 1992, the average productivity of American workers increased by more than 30 percent, while the average real wage fell by 13 percent." Power gathers in the nation's upper recesses, the middle class erodes and employment insecurity proceeds apace. Yes, it is a pyramid out there, as MLMers like to say. Meanwhile, notes Harper's Editor Lewis Lapham, "the expansion of wealth [on a global level] demands increasingly daring suspensions of disbelief" on the part of the rest of the population. Enter the multilevel marketers, who in Orwellian style claim "selling" is "sharing," giving is getting, that not the love of money but the "lack of money" is the root of all evil, that unlimited wealth can be yours despite mathematics to the contrary. Enter the dream-makers and wool spinners who operate with the blessings of our corporate-sponsored patriarchs to sell us the antidote to our own poison, which is, in fact, a double dose of the poison itself. * Some names have been changed to protect the anonymity of sources. [ Metro | Metroactive Central | Archives ]