Is every MLM a scam?

Herbalife under FBI investigation


Herbalife and FBI

It is clear that there re many scams in MLMs, but FBI going after Herbalife is a surprise even for people most skeptical about MLMs.

Herbalife is now subject of a criminal investigation by Manhattan US Attorney Preet Bharara and the FBI. this was reported by Bloomberg, CNBC, NYPost, CNN

Preet Bharara is well know as the “Man Busting Wall Street”, he took part in busting Madoff’s Ponzi scheme, Bank of America suit, SAC Capital, tracking insioder trading. In 2012, Bharara was one of “The 100 Most Influential People in the World” accorifng to Time, and 2011 Person of the Year by India Abroad

According to NYPost sources New York Attorney General Eric Schneiderman is investigating Herbalife over claims it is a pyramid scheme.

And Reuters reports that Herbalife was hit with a shareholder class lawsuit on Monday, Apri 14th 2014, that accuses Herbalife of failing to disclose to investors that its operations were based on a pyramid scheme. It was filed by Abdul Awad, an Herbalife shareholder. He claims that he bought Herbalife stock at inflated price, and Herbalife misrepresented and failed to disclose that it operated a pyramid scheme in which distributors primarily generated revenue by recruiting other distributors rather than selling products. and that Herbalife failed to disclose to investors that it engaged in “deceptive trade practices” to pressure customers to buy more products as distributors (case: Awad v. Herbalife Ltd, et al, U.S. District Court, Central District of California, No. 14-02850.)


Herbalife denies knowledge of FBI actions:

“We have no knowledge of any ongoing investigation by the DOJ or the FBI, and we have not received any formal nor informal request for information from either agency.”

Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments

Herbalife is currently not accused of any wrongdoing by FBI

Herbalife shares plummeted

At Friday (April 11th, 2014) afternoon, when the news was out, Herbalife stocks dropped 14%, – $8.36 to $51.48, with heavy trading volume.  That was the biggest one-day decline since Bill Ackman accused company of being a pyramid at 21 Dec 2012.



Is it really a pyramid scheme, or is it just an accusation of Bill Ackman who wants Herbalife shares to drop? Ackman accused Herbalife more than a year ago of running a pyramid scheme in which salespeople make more money recruiting new sales agents than selling products. Was Abdul’s case connected with Bill too? He states similar claims.


How much Platinum Amway IBO earns?

Did you meet Platinum IBO bragging about earning $75.000/year?

Do you believe him or her?

The truth is different. Amway Platinum IBO may earn closer to $30.000-40.000 yearly.

According to 2013 Amway Business Overview brochure, average annual compensation of Q12 platinum was $55.042, and highest annual compensation was $190.264. Only 0.32% of North America IBOs achieved at least Q12 platinum status (but not sapphire or higher) in the year 2012. That is, one of about 312 IBOs was platinum. By the way: approximately one of 1000 IBOs was Founder Emerald, and one of about 3000 was diamond.

Go diamond, you have 0,03% chance.

In 2009 it was $40,125  average,  $966,290  highest,  and just 0.26% of IBOs were at that level – that it one person for about 384 IBOs.

 How about Amway in Europe? How much Platinums earn there?

Based on data from years 2007-2010 it was €2,434 a month (€29,208 a year or about $40.000) at Founders’ Platinum level.

In year 2010/2011 it was €32,548/year, but that data included Founders Platinum/Ruby/Sapphire and was based on Western and Southern European countries, which are richer than Central and East European countries.

Please note, that in Europe there are other limits – 10.000 PV instead of 7.500PV and 21% instead of 25%.

Platinum income depends on downline structure

As you probably know, the platinum income largely dependents on downline structure (and of course on bonus form Amway company).

The more equally distributed the structure is, the bigger income. Unfortunately not equally distributed structures are very common.

Remember, that the bonus is calculated is through differential – percentage difference between Platinum and hid downline.  Imagine that you have 8000 PV in given month, and have two legs – 3900 PV each. That will give you (8000 PV * 3 BV/PV * 25%) – (2 * 4000 PV * 3 BV/PV * 21%) = $6000 – $5040 = 960$ a month. Not so great.

The scenario when all your business turnover comes mostly form one leg – is even worse.

Obviously it would be best to build, say, 6 legs of similar size – but reality is usually different that this ideal example.

But wait… what about expenses?

Numbers above represent money earned. Bot what about money spent on Amway “business”?

In 1982 the state of Wisconsin found (case State of Wisconsin vs Amway and others) that the average Platinum IBO, that was Direct Distributors at that time, lost by average $918 a year – income was smaller than expenses!

The expenses consist of:

  • driving  – increased amount of gas, tire and car wear, oil changes
  • eating or drinking out while making or sustaining contacts,
  • phone calls,
  • motivational and educational books, CDs, etc
  • seminars, functions, meetings
  • babysitting
  • buying overpriced products

All of those may sum up to $5.000-10.000 or more yearly.

The OTHER money (not so obvious Amway platinums’ earnings)

The platinum IBO may earn additional money besides that earned at Amway. For example, he may be compensated for speaking at opens, seminars, functions held by local motivational organization.

There might be also some money fro distributing motivational and educational materials to his group.

This may be substantial amount of money, even bigger than money form Amway.

[MYTH] 95% businesses fail in 3 years

Have you heard that from person trying to recruit you to MLM?

“95% (or 80%, or 90%) of traditional businesses fail in (first year, three years, five years)”

Sounds that MLM is better option. But is.. NOT.

Let’s check the facts.

Various businesses have various failure rate in on, three or five years.  For example funeral businesses usually do NOT fail in many years, while 60% of restaurants may be gone in 5 years. But this is still far form 95%!

How many businesses fail in first years?

Not as much as MLMer will tell you 🙂

For example restaurants – very “risky” business – about 20%-30% of them will fail in first year, 60% will fail in five years (sources: 1 2 3 4)

On the other hand – funeral homes usually lasts – just 1% of them fail (source: 1)

What about other business? Failure rate vary among businesses but you can assume, that
just 10-20% percent will fail in first year.

And 50% of businesses continue to exist after 5 years.

So, if you start a business, statistically you have 50% chance that it will last over 5 years.  After those 5 years, most of the businesses that still exist, will continue to exist for many years. (sources:  1 2 3)

See this graph by Bureau of Labor Statistics

Business failure rate
Establisment survival rate

How does it look after 4 years, by industry:

Industry Operating After 4 Years
Finance Insurance and Real Estate 58 %
Education and Health 56 %
Agriculture 56 %
Services 55 %
Wholesale 54 %
Mining 51 %
Manufacturing 49 %
Construction 47 %
Retail 47 %

Best and worst rate of success after 5 years:

Businesses with Best Rate of Success After Fifth Year
1 Religious Organizations
2 Apartment Building Operators
3 Vegetable Crop Productions
Business with Worst Rate of Success After Fifth Year
1 Plumbing, Heating, Air Conditioning
2 Single-Family Housing Construction
3 Grocery Stores
4 Eating Places


Now compare that to MLM

How many people will still be in that MLM after 5 years?

How many of them will make money?


Do you have better data? Or other comments? Please share!


Monavie Company

Okay, maybe this is a scam, maybe there are some dubious health claims, but now let’s talk about the company.

Monavie LLC is a company selling juices (or, to be more precise:  “products made from blended fruit and vegetable juice concentrates, powders and purées”. Those juices are being sold through MLM (Multilevel Marketing).

Now, get to the facts:

The company is BIG

In 2009 it was in the list of 500 fastest growing companies – it was 18th on Inc. 500 2009 list; AND 1st in Food & Beverage category. So it started pretty well.

Fast to 1 Billion Dollars in Revenue, or not?


The business is shrinking

In 2009 it was one of the fastest growing companies – but now the situation is not so good.


There are some not so nice things from the past