What is MLM Fraud?: Discovering The Truth Behind MLM Part 3

What is MLM Fraud?: Discovering The Truth on MLM

Part 3: The 8 Common Cases of MLM Fraud

Now that you understand how to interpret information and how MLM should work, let’s point out how a MLM should not work. There are many issues of legality that are inseparable from issues of effectiveness and long term success. Meaning things stated could be a sign that the company is guilty of MLM fraud but could also just be a sign that they are mislead, short sighted, or just practicing bad business. I will point these out as we arrive at them. Strangely enough by observing the mistakes the truth on MLM is revealed. Like a flipped coin the story spins offering a glimpse of both sides.

The Source and Nature of MLM Fraud

The nature of fraud itself involves deception. This usually occurs with an intent to deceive by one or many people. Honestly most companies guilty of MLM fraud were not guilty companies but guilty people. The entire leadership of a company may be corrupt but the distributors, as many are simply uneducated about issues of legality, may participate unknowingly. I mention this because there is rarely a large red stamp on a company stating ILLEGAL. There is a subtlety to deciphering a poor company from a fraudulent company or more often a fraudulent individual that could be considered an art. Technically legal or not, the following describes a MLM company you should stay away from.

MLM Fraud #1 Company Uses Money as Product.

This is the rare exception that I consider to be the conversation ender. If you discover that the company operates through “gifting” or “investing” money without the presence of any product, get out of there. A company using money as product is one of the only things that is always a sign of a scam. This is the least prominent today as it is the most obvious so it is more present in harder to trace mediums such as e mail.

MLM Fraud #2 Product is Not Tangible or Valuable

Often a fraudulent company will use a product as a front to hide its true nature . An easy way to spot these is to first check if the product is tangible and valuable. Some businesses using the MLM form of marketing will offer a service with no real value. They don’t actually sell any product, but they may have everyone involved buy and sell leads. These are often aged, over circulated and of no real use to anyone. It’s a way of monetizing a service to hide #1. Sometimes this same thing is done with products and a good way to spot this is to find out how well the product sells outside of the organization of distributors. You can also ask to try the product for yourself. One truth on MLM or any other effective form of marketing is that stability is forever connected to value provided.

MLM Fraud #3 Opaque Company Policy

There are several points here that regard a company’s openness and transparency. Does the company offer a money back guarantee on products and services? If they do not that is not a good sign. If you have a great product you should be able to back it without worry of any kind of loss. A company may not offer this due to financial reasons either way, it’s a bad sign. Does the company give you access to contact information? You should be able to contact the person who introduced you to the company, customer service at the company, and successful individuals in the business. Heck you should be able to contact the manufacturers of the products if you wanted to. You should also have access to any training you will require, and any information you will need. Another truth on MLM is that transparency reveals character, and only those with character can truly be so. Consider this simple yet profound observation, a shadow cannot exist in the light. Something must block the light for a shadow to exist.

MLM Fraud #4 Hype

If you ever encounter someone who is hyping up a product or their income that can be a bad sign. As I stated before this may be a result of bad training or good training not applied so again get in touch with other people in the company. In well meaning situations a distributor may regale the potential customer or distributor with stories of income or a great experience they had with a product. The experience someone has with a product or business is no determination of the experience their customer will have. They shouldn’t make any claims and if they are sharing a good experience they should always include in their conversation a disclaimer that the experience they had doesn’t mean that the customer will have the same experience.

MLM Fraud #5 Company Focuses Solely On Recruiting

A characteristic of MLM scams is that the company will pay distributors to recruit others. A company should be focusing on retail selling as well as recruiting. There is nothing wrong with recruiting in and of itself, the problem here is that the company will focus only on recruiting because of #1 and 2. Distributors should be able to make money without recruiting anyone. Recruiting should come after a distributor has established a client base and wants to expand by training another distributor. While someone could argue that with a good product it is okay to pay people to recruit as an incentive, let me say that a company should pay for the end result (the volume produced) not the number of people in an organization. A distributor should be paid for successfully training someone to produce volume, not just for signing them up.

MLM Fraud #6 Pressure, Obligation And Imposition

Often companies or peoples guilty of MLM fraud will have policies of pressure, obligation, and imposition. If you have experienced “being sold” that is a bad sign. Sometimes this is a sign of bad training or good training not applied. You may have to do some digging to determine that by contacting leaders in the company. Other times it is approved by a company where there are sign ups at business presentations. If you are put into such a pressure situation it is a bad sign. When I say obligation and imposition this is what I mean. Some companies will have a minimum order requirement of products, a necessary starter kit, and both with a high price tag at that. Even at a reasonable price these two impositions can be signs of monetizing the structure.

To give the potential flip side of this let me say that it is necessary for a distributor to have product, and other materials on hand in the process of building a base of clients and training new distributors. However this process should be a voluntary decision to follow proper training. If it is not this obligation ends up leaving more people bitter. Yet another truth on MLM is true power will attract while an act of force will repel. The flower doesn’t hunt down the bee, if it tried to it would freak the bee out! It would freak me out too, it is not natural.

MLM Fraud #7 High Price Tag

Watch out for an excessively high price tag on either the product or the start up. Often a product will be overpriced simply to generate cash flow for a structure that can’t be maintained without it. Products in this case are often examples of # 2. Also beware of a high price tag on the start up of your business. Take a look at what you are getting for what you are paying. There are scam companies that charge thousands to get started for nothing more than a legitimate company that will let you get started for 50 dollars. Often most legitimate companies allow you to get started for a couple hundred bucks or less.

MLM Fraud #8 “Buying In”

There are companies that offer the option “buy in” bumping them up to a higher level of compensation. The multi level marketing format is designed to be the fairest form of business out there, policies like this compromise that ideal. Any money you make should be earned not bought. This can often be disguised as a plan for “only the serious business owners” leading to yet another form of #6. People feel obligated to participate and end up using up money they don’t have to do so. Any company that says you can shortcut to the top is not a company you want to be part of. A final truth on MLM is there must be equality in opportunity and absolute challenge in kind. Everyone climbing mount Everest starts at the bottom.

Homework Time

In the process of getting to the truth on MLM you are going to have to do some homework. When spotting the points mentioned in this article keep in mind the points mentioned in part 1:perception and bias. Remember, always be guided by equality, truth, and honesty. Good luck.

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