Alert #217: 3/4/2013

Pyramid Scheme or Ponzi Scheme 
What’s The Difference?
Also, Industry Trends Update

What’s a Ponzi Scheme?

Many people, including those within the media, often use the terms “pyramid scheme” and “Ponzi scheme” interchangeably. In fact, these terms are not synonymous. A Ponzi scheme is structurally, mathematically and legally quite different than a pyramid scheme.

In part one of my four part video series I describe what defines an illegal pyramid and how they differentiate from a legitimate M.L.M. program. However, even if your company passes this test it doesn’t exempt it from still being declared a Ponzi scheme (or the sale of an unregistered, thus illegal, security, which I’ll cover in part three).

I often recite the line “If you go through your M.L.M. career with blinders on, sooner or later you’re going to get blindsided.” This is a great example of how that can happen. By not fully understanding how all three of these illegal schemes are defined (pyramid, Ponzi and security) you are setting yourself up to be blindsided by a state or federal legal authority shutting down an opportunity you were sure was on the up and up – just like what happened to Zeek Rewards reps (which I’ll be using as a case study in part four).

The second installment, “What’s a Ponzi Scheme?” can be viewed now at:

Part three, “What’s an Illegal Security?” will be posted by the end of the week, so stay tuned.

Industry Trends Update
One of the most significant metrics I use in judging the general attitude within the overall population regarding M.L.M. is a propriety algorithm that searches the internet for a wide variety of terms and phrases that are distinctly pro-M.L.M. (i.e. “I love network marketing”) vs. those that are definitively anti-MLM (i.e. “I hate network marketing”). After the search is completed (it usually takes 8-10 minutes – that’s a long time for a 2.66 GHz Quad-Core Mac with 50+ MB download speed), I calculate the ratio of the two totals using an aged, single processor human brain with limited memory, assisted by an Office Max desk calculator.
The good news is that the total number of pro-terms always outnumbers the con-terms, usually by about two-to-one. The bad news is that this ratio has been slowly trending down since it’s all time peak of 2.32-to-one in June of 2010.
Pro-Con MLM Terms Ratio
The number of unique visitors to the Wikipedia page for “Multilevel Marketing” is another good indicator of public interest trends.
Wiki Visitors


Although the number of people checking out this Wiki entry has almost tripled since the beginning of 2008, this is not necessarily a good thing. While this does indicate increased interest in our industry, the Wiki page itself has become a somewhat anti-M.L.M. site. It is now controlled by a small but diligent faction of anti-M.L.M. Wiki editors who give much credence and deference to other industry critics and their devoutly anti-M.L.M. websites, but will disallow any reference to most industry authorities, or their website, that might neutralize the critical content. As evidence, note the 48 footnotes, of which 14 direct the reader to a source supportive of M.L.M., 13 are neutral or balanced, and 21 point to anti-industry sources, including the websites of Robert FitzPatrick, Jon Taylor, Tracy Coenen, and even the 19 year old, utterly discredited article “What’s Wrong With Multilevel Marketing” by Dean VanDruff. FitzPatrick and Taylor are cited twice. However, when ever I have made any attempt to make the Wiki page fairer, more accurate, and more balanced by revising, rebutting or removing unjustified, misinterpreted, or outright wrong information, with footnoted references to authoritative advocate sites (not just my own), the edited sections are promptly reverted back to their original text. The explanation is usually that these sites are not credible because they are biased. And FitzPatrick’s, Taylor’s, Coenen’s and VanDruff’s are not?To be fair, the Wiki page is not nearly as biased towards the negative as it was just a few years ago, when there were only two footnotes referencing pro-M.L.M. sources.

Here’s a homework assignment for all of our industry trade associations (all four of them): Create a fair, balanced, objective, well sourced, and verifiably accurate, M.L.M. Wiki page, then have 1% of the 1% most active networkers (that’s still well more than 1,000 people) each spend just a few minutes, once or twice a week, making sure the fair, accurate and balanced version stays intact. I’m guessing the four or five anti-M.L.M. Wiki editors won’t be able to keep up, and will eventually give up.

Then, if another 82,392 people visit this Wiki page (which was last months total – March is on pace to hit a record 90,000), they’ll get both sides of the story.

Len Clements
MarketWave, Inc.


Alert #216: 2/25/2013

Pyramid Scheme or Legitimate MLM
What’s The Difference?

Due to the recent well publicized attacks on Herbalife by short seller Bill Ackman (who has made hundreds of millions of dollars by getting their stock price to drop), as well as the FTC’s recent closure of Fortune Hi-Tech Marketing, there is an abundance of misinformation within the media regarding what the delineation is between a legitimate, legal network marketing program and an illegal pyramid scheme. The mainstream press, such as CNBC, CNN, Forbes, and the Wall Street Journal, all seem to be relaying on completely inaccurate and long debunked definitions typically presented by a very few, but very prolific anti-MLM critics.

For example, that the “70% Rule” requires that at least 70% of all multilevel marketed products be sold to retail customers, not purchased by distributors.

Or that sales to distributors are not legally commissionable at all.

Or that distributors making more money from their downline commissions than from their own retail sales is indicative of an illegal pyramid scheme.

Some ignorant industry critics have even suggested the FTC’s legal criteria for shutting down FHTM precisely applies to Herbalife, and practically all MLM operations, as well.

And, of course, they’re wrong.

There also appears to be a renewed confusion as to the distinctions between a pyramid scheme and a Ponzi scheme. They are fundamentally different.

There’s also been a lot of chatter about what defines an “illegal security” as it pertains to MLM programs, likely due to the recent SEC action against Zeek Rewards and the Montana Commissioner of Securities & Insurance’s fining of Funky Shark for selling founders positions.

Over the next several days I will be posting a series of video blog entries defining in clear, laymen’s terms what the current legal definitions are for each of these types of schemes: Pyramid, Ponzi and Security. The fourth installment will use Zeek Rewards as a case study. ZR is a perfect subject considering they hit the legal trifecta. They were declared a Pyramid Scheme, a Ponzi Scheme, and an illegal security (although I personally question the Ponzi accusation).

The first installment, “What’s a Pyramid Scheme?” can be viewed now at:

For those of you who have been following the Battle Royal between Ackman and Herbalife, and now Ackman and several other reasonable, well informed Wall Street gurus, my rebuttal/exposé of Ackman’s case against Herbalife is now posted in the Articles Library here:

Part two, “What’s a Ponzi Scheme” will be posted by the end of the week, so stay tuned.

Len Clements
MarketWave, Inc.