5 Controversial MLM Schemes To Stay Away From

If you’ve ever gotten a message from one of those former friends from high school offering you a “once in a lifetime business opportunity,” odds are you’ve been exposed to a multi-level marketing (MLM) scheme.

Signing up with an MLM company may sound like an easy, or even fun way, to rake in some quick bucks by selling essential oils or clothing. But if it sounds too good to be true — well, it very likely is. And it might cost you more than a pretty penny before you realize it. 

Fortunately, there are some telltale signs that your old pal from tenth grade biology might not have your best interests in mind. GOBankingRates chatted with Daniel Anderson, consumer protection advocate and CEO of GoRubbishGo, as well as D. Anthony Miles, Ph.D., startup/marketing expert, forensic marketing expert and statistician at Miles Development Industries Corporation, to help you see enough of the signs ahead to not go off a financial cliff.

While it’s so very tempting to believe in guarantees of big rewards — like, you could retire at 40 years old, or even younger, rewards — for very little work, Anderson said that this is actually a major sign of an MLM.

Companies operating under this model often pressure new applicants to go purchase a lot of products, from “vitamins” to dietary supplements to active wear, that they might find difficult to sell. With their savings gone, they’re left with only boxes of unused products and a sense of shame.

“Vemma and Herbalife are among companies [that] have been accused of pumping their unsuspecting victims with quick wealth promises and then dumping them with unsellable products, notwithstanding huge debts,” said Anderson.

You might think that getting a “starter kit” of products can be worth even a large investment, but in truth, many MLMs get you to spend a lot of money to buy their products upfront. Though they promise you’ll make it back — and then some — Anderson shared the classic example of these companies: the infamous LuLaRoe, which charged recruits thousands of dollars for inventory.

Dubbing the LuLaRoe business model a “smack-dab-in-the-middle-of-pyramid-scheme territory,” he said that victims were often stuck with a lot of products and a big monetary loss.

Anderson said that a major sign that a new “business opportunity” is actually a scam is if it focuses on recruiting new members — even at the expense of selling actual products.

“Companies like Amway and Mary Kay have both been criticized because of such a visibly intense focus on expanding the downline at the expense of actually selling products, which creates in itself a pyramid scheme,” he said.

When the person recruiting you into their MLM has social media profiles covered in pictures of luxury, from elite cars to gorgeous homes and clothes that cost more than your rent, it’s easy to hope you could be as successful as they are.

Unfortunately, it could be a false hope. Miles said that projecting wealth is a very common recruitment scam.

“This one involves an MLM rep that projects the image of being a successful businessperson. They often recruit by trying to impress the recruited with false symbols of success,” he said. “[This rep] entices them and preaches to them by just working ‘The Plan.’ This is an unethical type of recruitment.”