Weaponizing Rhetoric to Legitimate Regulatory Failures

FIU Law Review FIU Law Review

Volume 18 Number 1 Article 5

Winter 2023

Weaponizing Rhetoric to Legitimate Regulatory Failures Weaponizing Rhetoric to Legitimate Regulatory Failures

Kat Albrecht

Georgia State University

, [email protected]

Kaitlyn Filip

Northwestern University School of Communication

, kaitlyn.>lip@northwestern.edu

Follow this and additional works at: https://ecollections.law.>u.edu/lawreview

Part of the Administrative Law Commons, Agency Commons, and the Antitrust and Trade Regulation

Commons

Online ISSN: 2643-7759

Recommended Citation

Kat Albrecht & Kaitlyn Filip,

Weaponizing Rhetoric to Legitimate Regulatory Failures

, 18 FIU L. Rev. 1

(2023).

DOI: https://dx.doi.org/10.25148/lawrev.18.1.5

This Article is brought to you for free and open access by eCollections. It has been accepted for inclusion in FIU

Law Review by an authorized editor of eCollections. For more information, please contact lisdavis@>u.edu.

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WEAPONIZING RHETORIC TO LEGITIMATE REGULATORY

FAILURES

Kat Albrecht & Kaitlyn Filip*

ABSTRACT

Pyramid schemes are illegal. According to the courts, they are

fraudulent because they must eventually collapse, disappointing or exploiting

the members at the bottom. This illegality, largely governed by the Federal

Trade Commission (FTC) and the Securities and Exchange Commission

(SEC), is narrowly construed to encompass only very specific instances of

activity. In particular, we argue that the specificity of the law allows multi-

level marketing companies (MLMs) to argue that they are “not a pyramid

scheme” both legally and societally in order to obfuscate exploitative

conditions within the company.

We take LuLaRoe as a case study of the ways in which this discourse is

weaponized to obfuscate the harms of multi-level marketing, thereby

exposing a substantial hole in regulatory frameworks. We conduct thematic

text analysis on a popular internet discussion forum to study how ordinary

people understand the law surrounding multi-level marketing companies. We

share findings about how the specific construction of the law affects legal

consciousness and cynicism about the protective capacities of consumer

protection and regulatory law. We advance the theoretical terrain by moving

from legal consciousness to legal cynicism to a new concept that we name

“legal creativity.” We ultimately argue that a narrow legal interpretation of

“pyramid schemes” serves to further exploit the very people that such

illegality is meant to protect; that ordinary people navigate regulatory holes

and fundamentally imperfect knowledge of the law by employing legal

creativity to generate solutions.

I. I

NTRODUCTION ................................................................................... 2

II. H

ISTORY AND HARMS OF MULTI-LEVEL MARKETING ....................... 5

* Kat Albrecht is an Assistant Professor at Georgia State University in the Andrew Young School

of Policy Studies. Robert Evans is a law student at Georgia State University. Kaitlyn Filip is a Law &

Humanities Fellow and a J.D. and Ph.D. Candidate at Northwestern University. The authors are grateful

to Tom Stanton, instructor at Johns Hopkins and former FTC senior official, for his comments and

encouragement on an earlier draft of the manuscript. The authors are also appreciative of valuable

feedback from attendees of the National Communications Association and the Law and Society

Association annual meetings and from the Northwestern J.D. and Ph.D. seminar.

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2 FIU Law Review [Vol. 18:001

III. T

HE PATH FROM LEGAL CONSCIOUSNESS TO LEGAL CYNICISM TO

LEGAL CREATIVITY ............................................................................ 9

IV. L

EGAL REGULATION OF PYRAMID SCHEMES ................................... 11

A. The Law Through LuLaRoe ....................................................... 12

B. “Doomed to Fail”: Historical Insight from Herbalife .............. 14

C. The Amway Rules: Our Analytic Substitutions .......................... 16

D. Published Administrative Guidance from the FTC and SEC .... 18

V. L

ULAROE CASE STUDY .................................................................... 22

A. Why LuLaRoe? .......................................................................... 24

B. The Problems of LuLaRoe ......................................................... 25

VI. M

ETHODS AND DISCOURSE DATA .................................................... 28

A. Methods ..................................................................................... 29

B. Thematic Analysis ...................................................................... 32

1. Pyramid Schemes Are Illegal .............................................. 32

2. Incomprehensibility Surrounding the Legal Definition of

Pyramid Schemes................................................................. 34

3. Pessimism About the Protective Capacity of Law .............. 36

4. Alternative Strategies and Legal Creativity ......................... 38

VII. R

ECOMMENDATIONS AND CONCLUSIONS......................................... 40

I. I

NTRODUCTION

In September 2021, the four-part docuseries LuLaRich premiered on

Amazon Prime Video.

The documentary tells the story of the founding of

and subsequent turmoil surrounding the multi-level marketing (MLM)

company, LuLaRoe. The show, through formal interviews with the founders

DeAnne and Mark Stidham, interviews with former LuLaRoe distributors

and designers, and deposition footage from lawsuits against the Stidhams,

told the story of a rapid, and ad hoc building of a massive company known

for selling leggings with bold patterns.

What followed was eventual feelings

of disenchantment—and subsequent lawsuits—from distributors who felt as

though they were being set up to fail. The series points to a large array of

problems within LuLaRoe that harmed distributors, including astronomical

buy-in costs into over-saturated markets and the use and circulation of stolen

artwork.

LuLaRich also interviewed former top-level distributors who were

left bankrupt and unsatisfied with their experience. Notably, the docuseries

also centered around deposition footage of the Stidhams directly

contradicting their own interview testimony. It is a salacious story of a

LuLaRich (Amazon Prime Video 2021).

See generally id.

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2023] Weaponizing Rhetoric 3

company causing a great deal of harm with ambiguous legal reckoning.

Although LuLaRich itself made a huge splash—with headlines detailing the

documentary as a tale of the scandals haunting LuLaRoe and predicting the

“collapse” of the company—the broader cultural and legal impact of

LuLaRoe and companies like it remains understudied and largely ignored by

the law even as these same companies continue to thrive.

In the aftermath of

LuLaRich, LuLuRoe has continued to operate and has most recently released

their 2023 Valentine’s Day Collection.

Although LuLaRoe garnered particular attention in fall 2021, it is just

one of many MLMs operating in roughly the same fashion. Multi-level

marketing companies, as their name suggests, operate by organizing their

sales into multiple levels. Instead of franchises or storefronts, MLMs center

around one company selling goods or services with layers of independent

distributors who directly sell within their personal and professional networks.

These distributors also make money by recruiting additional distributors to

work under them in what is called their “downline.” Many well-known

companies work with this distribution model or with this model in addition

to more traditional storefronts.

Such companies include, but are not limited

to: Arbonne, Amway, MaryKay, Avon, Beach Body, Herbalife, Nu Skin,

Pampered Chef, Primerica, Tastefully Simple, Thirty-One Gifts, and Young

Living.

Although LuLaRich portrayed LuLaRoe as a company whose

business model structurally hurt their distributors, the problems described by

the series reach far beyond this one company. And the law, despite the broken

promises of the LuLaRoe lawsuits, lacks teeth against the harm these

companies cause.

It can be tempting to delegitimize the economic effects and social

consequences of MLMs due to romanticized notions of suburban Tupperware

parties and door-to-door lipstick sales. However, this $35 billion industry

operates in a legal gray area that leaves 99% of its consultants losing money

See, e.g., Adrian Horton, ‘It’s Very Culty’: The Bizarre Billion-Dollar Downfall of Fashion

Company LuLaRoe, GUARDIAN (Sept. 15, 2021, 3:37 PM), https://www.theguardian.com/tv-and-

radio/2021/sep/15/lularich-lularoe-amazon-docuseries; Daniel D’Addario, ‘LuLaRich’ Breaks Down the

Fall of a Women’s Clothing Giant: TV Review, VARIETY (Sept. 9, 2021, 9:00 AM),

https://variety.com/2021/tv/reviews/lularich-lularoe-amazon-documentary-1235059098/; Elizabeth

Yuko, ‘Oh My God, We’re In a Cult’: New Docuseries Shows the Dark Side of Clothing Brand LuLaRoe,

ROLLING STONE (Sept. 18, 2021), https://www.rollingstone.com/culture/culture-features/lularich-

docuseries-lularoe-mlm-cult-1228224/.

See Love Ya Valentine’s Collection, LULAROE (2023), https://www.lularoe.com/love-ya-

valentines-collection-2023.

See Multi-Level Marketing Businesses and Pyramid Schemes, FED. TRADE COMM’N (July 2022),

https://consumer.ftc.gov/articles/multi-level-marketing-businesses-pyramid-schemes.

Member Directory Results, DIRECT SELLING ASS’N,

https://www.dsa.org/forms/CompanyFormPublicMembers/search?action=find (last visited Oct. 14,

2023).

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4 FIU Law Review [Vol. 18:001

after targeted and predatory recruitment tactics.

Moreover, a lot of these

companies can skirt the technical requirements of ineffective pyramid

scheme regulations in the United States and continue to operate legally. The

regulatory oversight of MLMs is toothless, relying on the opaque and

ineffective concept of the “pyramid scheme” against which MLMs can often

define themselves in order to dodge legal accountability for their

unsustainable business practices. We demonstrate that because of the massive

administrative holes, MLMs functionally weaponize anti-pyramid scheme

rhetoric to appear legitimate to vulnerable recruits and consumers. In other

words, MLMs use the ineffective concept of the pyramid scheme in order to

build a case for their own legitimacy. In this way, the law serves to endorse

and amplify the very harm it was intended to prevent.

This Article uses LuLaRoe as a case study to interrogate the ways in

which legal regulation of pyramid schemes utterly fails in the face of MLMs.

Even beyond that, the ineffectiveness of pyramid scheme regulation actually

creates an opening for businesses that are facially legitimate to exploit

consumers and distributors in the very ways that anti-pyramid rules and

regulations are theoretically meant to prevent. We argue that existing rules

against pyramid schemes are thin and do not adequately regulate against the

behaviors that are harmful in practice. Furthermore, we argue that not only is

this category not protective, it is also problematically opaque and difficult to

understand in such a way that erodes public trust in the regulatory system.

We select LuLaRoe as a case study because of its large market share,

spate of legal problems, and the presence of a large discursive community

focused on LuLaRoe, but the harms that this company perpetuates and the

problems we articulate are generalizable across the industry. We broadly

argue that the legal definition of a pyramid scheme is so narrow that predatory

companies like LuLaRoe are insufficiently regulated. Further, we argue that

the specific construction of the law has additional consequences that affect

consultants and consumers. To make these arguments, we conduct a thematic

analysis of text discussions about LuLaRoe and identify three primary

concerns: (1) that the specific legal definition of a pyramid scheme creates a

way for LuLaRoe and its consultants to differentiate LuLaRoe from an illegal

pyramid scheme, (2) that ordinary people do not understand the legality of

MLMs or the definition of pyramid schemes, and (3) that ordinary people are

consequently pessimistic about the capacity of law to protect them from

exploitation and predatory practices.

See JON M. TAYLOR, CONSUMER AWARENESS INST., THE CASE (FOR AND) AGAINST MULTI-

LEVEL MARKETING intro. at 4 (2012) (explaining the results of studying 350 MLM or direct sales

companies and discussing common myths and misperceptions about the structure of and possible profits

from such companies).

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2023] Weaponizing Rhetoric 5

This Article makes several important scholarly and practical

interventions. First, we introduce the theoretical idea that both cultural and

legal discourse can work to paper over systemic injustices, directly

contributing to the legal consciousness, and legal cynicism literature. Second,

we specifically interrogate the legal and analytic category of the “pyramid

scheme,” arguing that it is opaque, unsustainable as a regulatory practice, and

a functionally useless category. Third, we demonstrate how ordinary people

talk about and understand the legal and analytical category of “pyramid

scheme” by unpacking the relevant discourse around our particular case

study. In doing so, we make methodological interventions in the legal

consciousness space by utilizing data from internet forums, and bringing in

direct perspectives from ordinary people. Specifically, our data source is

Reddit, which structurally offers space for detailed discussion under the veil

of anonymity, giving a more accurate depiction of how people actually talk

to each other, particularly when compared to artificial lab conditions under

which behavior and opinion are ordinarily studied.

The Article proceeds as follows. First, we unpack the history of MLMs,

including how they have been socially and economically disadvantageous.

Second, we review the currently existing literature in the legal consciousness

and legal cynicism spaces in order to hone in on these conversations and

develop them into our own theory of legal creativity. Specifically, we discuss

literature on administrative law and regulatory philosophy, class actions and

arbitration as means of adjudicating harm against businesses, and the legal

consciousness and legal cynicism literature we have foregrounded in this

introduction. Third, we unpack the existing legal terrain of regulating

pyramid schemes, ultimately arguing that this legal concept is not a useful

heuristic for preventing the types of harms perpetuated by MLMs, as outlined

in section two. Fourth, we introduce our case study, specifically unpacking

the history of LuLaRoe and its controversies to date. Fifth, we delve into that

case study, using forum data to argue that MLMs and their distributors use

and, ultimately, weaponize rhetoric around the concept of “pyramid

schemes” in order to dodge social and legal accountability. Further, we argue

that ordinary people, non-legal experts, are aware of how this rhetoric is

deployed and how the law is toothless to stop it. Finally, we conclude with

recommendations, specifically focusing on the recommendation to

affirmatively regulate MLMs as MLMs in order to prevent the pervasive use

of “pyramid schemes” for oppositional self-definition.

II. H

ISTORY AND HARMS OF MULTI-LEVEL MARKETING

Direct-sales models have been popular in the United States since the

early 20th century, with early estimates in volume of direct sales ranging

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6 FIU Law Review [Vol. 18:001

from $300–500 million annually.

Although some companies targeted male

salespeople, college-aged salespeople—and in the case of Fuller Brush

Company, African American teachers—women targeted companies have

long dominated the beauty and lifestyle categories.

With the midcentury

rise of behemoth beauty brands like Avon and Mary Kay, women had new

types of work options outside the home, propelling direct sales to billions of

dollars in retail sales each year post-WWII.

Today, multi-level marketing

is driven by primarily female consultants delivering female-targeted products

like home goods, fashion, and beauty.

Data collected by the Direct Selling

Association in 2017 found that 73.5% of the 18.6 million direct-sales

consultants are female and that they contributed to an estimated $34.9 billion

in annual retail sales.

Following several important structural and operational changes, direct-

selling models transitioned into multi-level marketing (both structurally and

rhetorically) in 1945.

While still strongly reliant on directly selling to

networks of friends and family, the contemporary MLM model also makes

recruiting, training, and supervising recruits the job of sales consultants.

This creates a system where sales consultants develop “downlines” from

which they gain selling incentives or bonuses. Scholars William W. Keep and

Peter J. Vander Nat explain that MLMs effectively combine three forms of

entrepreneurial sales: (1) selling products to non-distributors, (2) selling

products to other distributors via downlines, and (3) earning company

William W. Keep & Peter J. Vander Nat, Multilevel Marketing and Pyramid Schemes in the

United States, 6 J. HIST. RSCH. MKTG. 188, 189 (2014) (citing Walter Curtis, Direct Selling Has Come to

Stay, NATION’S BUS., Aug. 1925, at 25; and H. Botsford, Direct Distribution, 6 BARRON’S, no. 12, 1926,

at 12).

See Enid Nemy, Mary Kay Ash, Who Built a Cosmetics Empire and Adored Pink, Is Dead at

83, N.Y. TIMES (Nov. 23, 2001), https://www.nytimes.com/2001/11/23/business/mary-kay-ash-who-

built-a-cosmetics-empire-and-adored-pink-is-dead-at-83.html; see also WALTER A. FRIEDMAN, BIRTH OF

A SALESMAN 204–05 (2004).

Peter S. Cahn, Building Down and Dreaming Up: Finding Faith in a Mexican Multilevel

Marketer, 33 AM. ETHNOLOGIST 126, 126–27 (2006); see generally U. S. BUREAU LAB. STAT., WOMEN

THE LABOR FORCE: A DATABOOK (2013) (providing general context about female labor force

participation).

See ANGELA B.V. MCCRACKEN, THE BEAUTY TRADE: YOUTH, GENDER, AND FASHION

GLOBALIZATION 131 (2014).

DIRECT SELLING ASS’N, DIRECT SELLING IN THE UNITED STATES: 2017 FACTS AND DATA

(2018).

Throughout this Article, we deliberately use the phrase “multi-level marketing,” although

MLMs have been and continue to be referred to as network marketing and direct sales models as well. We

use MLM for consistency across this Article because it is the most well-known nomenclature, and because

it emphasizes the problematic structure of the model particularly when compared to obfuscating

nomenclature such as “direct selling.”

See generally Kent Grayson, Friendship Versus Business in Marketing Relationships, 71 J.

MKTG. 121 (2007).

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2023] Weaponizing Rhetoric 7

compensation based on personal purchases and the purchases of a downline.

Effectively, not only are sales consultants salespeople, but they are also

customers when they purchase from other distributors in their upline.

Although the MLM industry has seen massive profits and the Direct

Sales Association has reported profits for women,

the reality for individual

consultants is much more bleak. In fact, despite the corporate profits, 99% of

individual consultants lose money.

This is a shocking proportion of

participants in MLMs and, as we shall show, a substantially worse outcome

than might be expected given their legality. This statistic is not new, nor has

it slowed the meteoric rise of MLMs. As far back as 1980, an investigation

by the Office of the Attorney General for the State of Wisconsin found that

the top 200 distributors of Amway (a popular lifestyle MLM founded by the

DeVos family) made an average of -$900: operating at a loss of nearly

$1,000.

The 2011 report by the Consumer Awareness Institute conducted

thirty years later found no improvement in the odds of MLM success, and

reports that 100% of the 350 analyzed MLMs are recruitment driven, top-

weighted, and that at least 99% of consultants lose money.

Additionally,

research has concluded that financial losses from MLM participation are felt

more severely in areas with less formal labor force participation by women,

higher inequality, lower social capital, and a higher percentage of people

identifying as Hispanic.

This leaves us with a market structure that is proven

predatory, begging the question of why MLMs continue to be popular,

continue to be profitable, and continue to be legal.

The terrain of MLMs has continued to change with the advent of the

internet. Although MLMs got their start in Cold War living rooms and in

door-to-door sales, in 2023 they largely exist through social media and are

propelled in digital spaces. The classic “Tupperware party” is largely a

phenomenon of the pre-internet days, and now, most buying, selling, and

recruiting takes place online. MLM distributors utilize all forms of social

media—including Facebook groups and Instagram stories in particular—in

order to buy, sell, and recruit additional participants. This has given MLM

consultants a wider customer base than ever before. The advent of social

media has come with a substantial increase in the number of sellers and,

consequently, a substantial increase in the volume of informal advertisements

Keep & Vander Nat, supra note 9, at 192–93.

DIRECT SELLING ASS’N, supra note 13.

TAYLOR, supra note 8, intro. at 4–5.

Id. ch. 7, at 3.

See id. at 21, 26; id. ch. 8, at 55; id. ch. 10, at 49.

Claes Bäckman & Tobin Hanspal, Participation and Losses in Multi-Level Marketing: Evidence

from a Federal Trade Commission Settlement, 5 FIN. PLAN. REV., no. e1137, Mar. 2022, at 1, 1, 2, 6–7,

https://onlinelibrary.wiley.com/doi/epdf/10.1002/cfp2.1137.

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8 FIU Law Review [Vol. 18:001

(or social media posts) for MLM products and services. These posts are often

entirely free from oversight, either from regulatory agencies such as the FCC

or from the companies for which they advertise. Selling tactics on social

media have been documented to be misleading, including creating deceptive

images and posts about money-making potential and flexible work

opportunities.

The COVID-19 pandemic has led to increased legal and popular

problematization of MLMs. Since the pandemic reached the United States in

March 2020, MLM distributors have made health and earnings claims related

to the coronavirus: they are exaggerating the health benefits of their products

and making guarantees of income for furloughed workers in addition to

generally exploiting a time of panic for profit.

This pandemic rhetoric

prompted the FTC to release multiple rounds of warnings directed at

companies and individual consultants beginning in April of 2020. These

warnings specifically highlight financial claims that tout MLMs as a viable

employment strategy in the wake of mass unemployment due to COVID-

19.

One such highlighted claim, comparing an MLM to the United States

government’s stimulus package in a bid to recruit new distributors, was made

in a video that stated:

I can tell you that there’s thousands of people that are out of

work right now. They’re all looking for a way to go earn

money. This is a great stimulus package, because you get to

teach somebody how to go earn $1,730 literally in their first

10 days in the business.

This demonstrates how the pandemic could be leveraged as a means to,

not just sell products, but to recruit additional distributors. This particular

brand of rhetoric brought increased scrutiny to MLMs both in the public

consciousness and from regulatory agencies.

Sara Silverstein et al., People Who Sell for Multilevel Marketing Companies Look Wildly

Successful on Facebook, but the Reality is Much More Complicated, BUS. INSIDER (Aug. 6, 2019, 12:11

PM), https://www.businessinsider.com/mlms-use-social-media-facebook-portray-financial-success-

2019-7.

Lisette Voytko, FTC Warns 16 Multi-Level Marketing Companies About Coronavirus Fraud,

FORBES (June 28, 2021, 1:21 PM), https://www.forbes.com/sites/lisettevoytko/2020/06/09/ftc-warns-16-

multi-level-marketing-companies-about-coronavirus-fraud/?sh=2a49a9e57b9d.

FTC Sends Warning Letters to Multi-Level Marketers Regarding Health and Earnings Claims

They or Their Participants are Making Related to Coronavirus, FED. TRADE COMM’N (Apr. 24, 2020),

https://www.ftc.gov/news-events/news/press-releases/2020/04/ftc-sends-warning-letters-multi-level-

marketers-regarding-health-earnings-claims-they-or-their.

Id.

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2023] Weaponizing Rhetoric 9

Just over a month later, in June of 2020, the FTC released another round

of warnings to combat claims made in both English and Spanish languages.

Again, the FTC focused on misleading health claims and financial claims

made by multi-level marketing companies and their sales consultants.

remains to be seen if there will be a significant rise in MLM consultants and

consumers as a result of the economic devastation of the pandemic as it is

still too early to tell even three years out, though several news outlets report

an increased prevalence of predatory recruitment tactics.

However, the

attention from the FTC in particular seems to have been short-lived.

III. T

HE PATH FROM LEGAL CONSCIOUSNESS TO LEGAL

CYNICISM TO LEGAL CREATIVITY

In this Article, we use our case study to map a path from the heavily

established theoretical frameworks of legal consciousness to legal cynicism

to a new theoretical framework we call “legal creativity.” All of these

theoretical frameworks attempt to theorize the relationship between ordinary

people—non-experts—and the law. Legal consciousness scholars study how

ordinary people understand and interpret the law. This is an epistemological

framework but one that often argues that people’s understanding of the law

motivates their interest in and ability to interact with the legal system to enact

their rights. Legal cynicism posits that some communities, particularly

marginalized ones, have a robust lack of trust in the legal system, often

stemming from their intimate knowledge of that system. We take both of

these theoretical categories in turn before unpacking our own theory of legal

creativity as a response to legal consciousness and legal cynicism.

Legal consciousness literature, as described by Lynette J. Chua and

David M. Engle, “refers to the ways in which people experience, understand,

and act in relation to law,” including the documentation of that process.

Sometimes this theoretical framework intersects with the law and rhetoric or

FTC Sends Second Round of Warning Letters to Multi-Level Marketers Regarding Coronavirus

Related Health and Earnings Claims, FED. TRADE COMM’N (June 5, 2020), https://www.ftc.gov/news-

events/news/press-releases/2020/06/ftc-sends-second-round-warning-letters-multi-level-marketers-

regarding-coronavirus-related-health.

Id.

Paige Leskin, ‘Predatory’ Companies Like Monat and Mary Kay are Using Memes and

Coronavirus Anxiety to Target Millions of Newly Unemployed Americans, BUS. INSIDER (Apr. 10, 2020,

2:56 PM), https://www.businessinsider.com/mlms-coronavirus-layoffs-monat-mary-kay-younique-

recruit-social-media-2020-4; Stephanie Parker, MLMs are Using the Coronavirus to Recruit New Sellers,

VOX (Mar. 26, 2020, 7:10 AM), https://www.vox.com/the-goods/2020/3/26/21187035/mlms-

coronavirus-recruit-young-living-doterra-essential-oils.

Lynette J. Chua & David M. Engel, Legal Consciousness Reconsidered, 15 ANN. REV. L. &

SOC. SCI. 335, 336 (2019).

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10 FIU Law Review [Vol. 18:001

the law and literature scholarship. Patricia Ewick and Susan S. Silbey, for

example, argue that the law is a kind of narrative which frames how people

understand it.

Other important work in legal consciousness emphasizes the

ways in which an individual or group’s social position influences their

consciousness or understanding of the law.

Others have argued that changes

in policy and social movements can result in shifts in legal consciousness.

Legal cynicism literature has similar social-scientific and humanistic

dueling underpinnings. Political and rhetorical theorists emphasize the ways

in which public trust in institutions can be eroded through the public’s

awareness of malfunctions in the institution, including the legal system.

Social scientists have named and studied this phenomenon as legal cynicism

and have noted how it functions, particularly within poor, Black communities

to justifiably limit trust in policing.

In this Article, we contribute to these literatures as we argue that, in our

case study, ordinary people are specifically and deliberately engaging with

the law, but that engagement ultimately renders them cynical about the

protective capacities of the law. We find that, despite the opacity of the

concept and overall difficulty clarifying what a pyramid scheme is or means

legally, ordinary people are able to sufficiently grapple with the law to

See PATRICIA EWICK & SUSAN S. SILBEY, THE COMMON PLACE OF LAW: STORIES FROM

EVERYDAY LIFE (1998).

Laura Beth Nielsen, Situating Legal Consciousness: Experiences and Attitudes of Ordinary

Citizens About Law and Street Harassment, 34 L. & SOC’Y REV. 1055, 1087 (2000); Leisy J. Abrego,

Legal Consciousness of Undocumented Latinos: Fear and Stigma as Barriers to Claims-Making for First-

and 1.5-Generation Immigrants, 45

L. & SOC’Y REV. 337, 337 (2011); Diana Hernández, “I’m Gonna

Call My Lawyer:” Shifting Legal Consciousness at the Intersection of Inequality, 51 STUD. L. POL. &

SOC’Y 95, 97 (2010); see LISA VANHALA, MAKING RIGHTS A REALITY? DISABILITY RIGHTS ACTIVISTS

AND

LEGAL MOBILIZATION (2011).

See ANNA-MARIA MARSHALL, CONFRONTING SEXUAL HARASSMENT: THE LAW AND POLITICS

EVERYDAY LIFE (2005); Kathleen E. Hull, The Cultural Power of Law and the Cultural Enactment of

Legality: The Case of Same-Sex Marriage, 28 L. & SOC. INQUIRY 629, 629 (2003); MICHAEL W.

MCCANN, RIGHTS AT WORK: PAY EQUITY REFORM AND THE POLITICS OF LEGAL MOBILIZATION (1994);

Lynette J. Chua, Pragmatic Resistance, Law, and Social Movements in Authoritarian States: The Case of

Gay Collective Action in Singapore, 46

L. & SOC’Y REV. 713, 718 (2012); Lynette J. Chua, The

Vernacular Mobilization of Human Rights in Myanmar’s Sexual Orientation and Gender Identity

Movement, 49 L. & SOC’Y REV. 299, 304 (2015); LYNETTE J. CHUA, THE POLITICS OF LOVE IN MYANMAR:

LGBT MOBILIZATION AND HUMAN RIGHTS AS A WAY OF LIFE (2019); SANDRA R. LEVITSKY, CARING

FOR

OUR OWN: WHY THERE IS NO POLITICAL DEMAND FOR NEW AMERICAN SOCIAL WELFARE RIGHTS

(2014).

Paul Gowder, What the Laws Demand of Socrates

⎯

and of Us, 98 MONIST 360, 360 (2015).

Robert J. Sampson & Dawn Jeglum Bartusch, Legal Cynicism and (Subcultural?) Tolerance of

Deviance: The Neighborhood Context of Racial Differences, 32 L. & SOC’Y REV. 777, 782–83 (1998);

Lawrence D. Bobo & Victor Thompson, Unfair by Design: The War on Drugs, Race, and the Legitimacy

of the Criminal Justice System, 73 SOC. RSCH. 445, 446–47 (2006); David S. Kirk & Andrew V.

Papachristos, Cultural Mechanisms and the Persistence of Neighborhood Violence, 116 AM. J. SOCIO.

1190, 1191, 1199–200 (2011); John Hagan et al., Dual-Process Theory of Racial Isolation, Legal

Cynicism, and Reported Crime, 115 PNAS 7190, 7190–91 (2018).

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2023] Weaponizing Rhetoric 11

understand that it does not offer meaningful legal protection. This awareness

of the toothlessness of the law results in cynicism about the law. However,

we take that a step further and discuss how this awareness of the lack of

protective capacity—and the conception of the law as a problem-solving

tool—also results in ordinary people engaging in what we call “legal

creativity.” Here, we will move beyond the legal consciousness and legal

cynicism literature to develop how ordinary people engage in legal creativity.

IV. L

EGAL REGULATION OF PYRAMID SCHEMES

Although the FTC has paid some increased attention to MLMs in the

COVID-19 era and, as we will show, consumers are increasingly curious

about the MLMs’ legal standing as pyramid schemes, the substantive case

law on MLMs as pyramid schemes is incredibly thin. Pyramid schemes are

illegal; a company theoretically cannot operate as a pyramid scheme without

facing potential civil or, in some instances, criminal sanctions. However, it is

incredibly difficult to determine the standards against which companies will

be measured in determining if they are legally cognizable as pyramid

schemes. This is particularly true for MLMs which operate as complete

structures and always involve—at least facially—the sale of goods or

services. As we will show in our case study analysis, there is an assumed

cultural relationship between pyramid schemes and MLMs in some

discursive communities. Ultimately, however, although the relationship

between MLMs and pyramid schemes has taken hold in the popular

imagination, the law has not adequately provided guidance for or testing of

this relationship. In fact, insofar as a legal definition of pyramid schemes

exists, we argue that it is so narrow as to be functionally meaningless. In this

section, we unpack the legal terrain of MLMs and argue that the legal and

analytical category of “pyramid scheme” is functionally toothless in the face

of most pertinent predatory business practices.

This section proceeds in four parts. First, we discuss the specific

lawsuits faced by LuLaRoe in order to begin to understand the contemporary

legal landscape through the most contemporary example. Next, facing

unsatisfying legal answers from LuLaRoe’s spate of legal cases, we draw on

the historical example of Herbalife and unpack the “doomed to fail” as a

standard for understanding the definition of a pyramid scheme. Again, not

reaching clear definition standards, we turn next to Amway and the still-in-

use rules that define pyramid schemes. We argue here that even though we

begin to see some affirmative definition work from lawmakers, it is

ultimately just an expression of preference from Amway itself and covers

only a small portion of the problem. Finally, we turn to agency guidance to

once again attempt to understand the most current definitional landscape on

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12 FIU Law Review [Vol. 18:001

the “pyramid scheme” versus MLM debate. Here, we argue that, once again,

the guidance does little to actually cover harms caused by MLMs and instead,

sets up an artificial distinction between “pyramid schemes” and “legitimate

MLM business opportunities” that only serves to paper over overt regulatory

failures.

A. The Law Through LuLaRoe

We begin our legal analysis through a specific look at LuLaRoe.

Because, as we will show, the law has not affirmatively offered substantial

insight into how MLMs are evaluated via statute or strong precedent, using

contemporary cases is, in fact, the best way of beginning to understand the

legal landscape. LuLaRoe has, compared to other MLMs in the digital age,

been a hotbed of legal activity.

In legal actions against MLMs alleging a

pyramidal structure, the cases are likely to be civil suits where the plaintiffs

are individuals (or classes of individuals) or regulatory action taken by

federal agencies like the FTC, the Securities and Exchange Commission

(SEC), or the Department of Justice (DOJ).

The DOJ has criminal

jurisdiction, but they are unlikely to exercise such jurisdiction over MLMs.

Instead, the major players here tend to be individuals in class action suits and

the FTC.

LuLaRoe has faced litigation and enforcement from both.

In addition to a host of other civil lawsuits, including for improper

calculation of sales tax, intellectual property theft on their product design,

and breach of contract failure to pay their suppliers, LuLaRoe has been the

named defendant in several civil cases specifically alleging that they operate

as a pyramid scheme.

In 2017, LuLaRoe was confronted with five class

action civil suits in the Central District of California alleging that LuLaRoe

See sources cited infra notes 39–49.

Camille H. Mangiaratti, Big Dreams and Pyramid Schemes: The FTC’s Path to Improving

Multi-Level Marketing Consumer Protections in Light of AMG Capital Management and the 2016

Herbalife Settlement, 30 J.L. & POL’Y 228, 250 (2021).

Id.

See sources cited infra notes 39–49.

See, e.g., Webster v. LLR, Inc., No. 2:17cv255, 2018 U.S. Dist. LEXIS 232832, at *2–3 (W.D.

Pa. Aug. 20, 2018) (hearing on the improper calculation of sales tax); Complaint at 7–8, Balaz Solti v.

Lularoe, LLC, No.2:17-cv-00451 (C.D. Cal. Jan. 19, 2017) (hearing on the improper calculation of

intellectual property theft); Third Amended Complaint at 12, Providence Indus., LLC v. LuLaRoe, LLC,

No. RIC 1825263 (Cal. Super. Ct. Mar. 12, 2019) (hearing on the failure to pay their suppliers

respectively).

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2023] Weaponizing Rhetoric 13

operated as a pyramid scheme.

All five of these cases were voluntarily

dismissed by the plaintiffs.

In 2019, LuLaRoe was the named defendant in another Central District

of California class action suit, which resulted in an arbitration order and

another voluntary dismissal.

Often, the reasons for the voluntary dismissal

are unclear; here, however, the plaintiffs named the reasoning in their motion

to dismiss. In this instance, they expressly stated that the arbitration order

was unduly prohibitive because it functionally decertified the class,

mandating that each plaintiff proceed with arbitration individually.

Class

action suits work effectively as a response to companies causing harm to

large groups of individuals because they allow for damages sufficient to

compensate representation while still providing some form of restitution for

the harms experienced and those individuals harmed.

Arbitration is

typically more financially feasible for defendant corporations and more

expensive for individual plaintiffs because it requires each individual to

participate in their own action against the company.

Arbitration is typically

not subject to standard rules of discovery (limiting the kinds of evidence that

can be introduced and emphasizing greater initial knowledge from the

plaintiffs at the time of pleading) and arbitral awards tend to be smaller.

Functionally, there is no precedential outcome in any of the class action

civil suits brought against LuLaRoe because they all ended in a voluntary

dismissal prior to actual litigation. The courts have not yet fully heard the

issue of whether or not LuLaRoe is operating as a pyramid scheme. Although

there are often legal, economic, and strategic reasons behind a pattern of

dismissals, it is not possible to ascertain a specific legal rule from a case that

did not proceed. From the pattern of litigation, we are able to see a glimpse

into litigation strategies being attempted—here, in part, arguing that

LuLaRoe is operating as a pyramid scheme—but lack a deep understanding

Complaint, Lemberg v. Lularoe, 2018 U.S. Dist. LEXIS 239291 (C.D. Cal. Mar. 1, 2018) (No.

17-cv-02102-AB); Complaint, Berry v. Lularoe, LLC, No. 17-cv-02176 (C.D. Cal. Oct. 23, 2017);

Complaint, Haskett v. Lularoe, No. 17-cv-02212 (C.D. Cal. Oct. 27, 2017); Complaint, Atkinson v.

Lularoe, No. 17-cv-02287 (C.D. Cal. Nov. 14, 2017); Complaint, Rocke v. Lularoe, No. 17-cv-02414

(C.D. Cal. Nov. 30. 2017).

2017–2021 Pyramid Scheme Class Actions, TRUTH ADVERT. (Feb. 10, 2022),

https://www.truthinadvertising.org/2017-pyramid-scheme-lawsuits-chart/.

LuLaRoe Pyramid Scheme Allegations, TRUTH ADVERT.,

https://www.truthinadvertising.org/Lularoe-pyramid-scheme-allegations/ (last visited July 26, 2021).

Motion for an Order Dismissing Action with Prejudice at 1–3, Sperring v. LLR, Inc., 2019 U.S.

Dist. LEXIS 247160 (C.D. Cal. Aug. 29, 2019) (No. 19-cv-00433-AB).

David Rosenberg, Mandatory-Litigation Class Action: The Only Option for Mass Tort Cases,

115 HARV. L. REV. 831, 832 (2002).

Sarah Clasby Engel & Sherry Tropin, Class Action Arbitration: A Plaintiff’s Perspective, 5 FIU

L. REV. 145, 150 (2009).

Id. at 150–51.

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14 FIU Law Review [Vol. 18:001

as to why they are unsuccessful and even if they would be successful, were

particular barriers to that argument removed.

Beyond the individual class actions, the Washington Attorney General

brought a civil suit against LuLaRoe in 2019, also claiming that the company

was operating as a pyramid scheme.

In February of 2021, LuLaRoe settled

this case for $4.75 million.

Although there are many reasons why a

company might choose to settle instead of pursuing litigation—LuLaRoe

itself points to the comparative expense of a protracted legal battle—the

outcome is the same as with the dismissed civil suits above: we cannot

definitively say what the court would do with these facts under those laws.

The story of the law as told through the litigation against LuLaRoe is one that

is fundamentally unsettled. Although the litigation strategy coalesces around

the idea of the illegal pyramid scheme, LuLaRoe itself gives very little insight

into actually understanding how the law understands MLMs.

B. “Doomed to Fail”: Historical Insight from Herbalife

The cases against LuLaRoe ultimately go nowhere in terms of offering

a definitive answer to the question of whether or not LuLaRoe is operating

as a pyramid scheme. In fact, no cases against any MLM have offered a

definitive standard for determining how (or whether) to distinguish MLMs

from pyramid schemes. The closest any legal action has gotten into offering

insight is the 2016 FTC settlement with health and wellness MLM Herbalife.

In 2016, the FTC mandated that Herbalife, in order to continue operations,

would need to pay $200 million to compensate consumers and to

fundamentally restructure their business to decouple compensation from

recruitment.

The terms of this settlement are obviously not precedential but

they offer more contemporary insight into the FTC’s regulatory process and

broadly reiterate an older regulatory action as well as model some standards

AG Ferguson Sues LuLaRoe Over Pyramid Scheme, WASH. ST. OFF. ATT’Y GEN. (Jan. 25,

2019) [hereinafter AG Ferguson Sues LuLaRoe], https://www.atg.wa.gov/news/news-releases/ag-

ferguson-sues-Lularoe-over-pyramid-scheme.

Stephanie McNeal, LuLaRoe is Paying More Than $4 Million To Settle a Lawsuit That Claimed

It Was Running a Pyramid Scheme, BUZZFEED (Feb. 2, 2021, 8:32 AM),

https://www.buzzfeednews.com/article/stephaniemcneal/lularoe-settles-washington-state-pyramid-

scheme-lawsuit; LuLaRoe to Pay $4.75 Million to Resolve AG Ferguson’s Lawsuit Over Pyramid Scheme,

ASH. ST. OFF. ATT’Y GEN. (Feb. 2, 2021) [hereinafter LuLaRoe to Pay $4.75 Million],

https://www.atg.wa.gov/news/news-releases/lularoe-pay-475-million-resolve-ag-ferguson-s-lawsuit-

over-pyramid-scheme.

Id.

Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For

Consumer Redress to Settle FTC Charges, FED. TRADE COMM’N (July 15, 2016),

https://www.ftc.gov/news-events/press-releases/2016/07/herbalife-will-restructure-its-multi-level-

marketing-operations.

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2023] Weaponizing Rhetoric 15

that become clear in FTC and SEC consumer-facing guidance: that a pyramid

scheme is “doomed to fail.”

The idea that a pyramid scheme is a pyramid scheme because it is

“doomed to fail” has definite popular analytical traction, although that is only

part of the legal story.

This term is analytically simple in organizations

operating without the transmission of products or services. An enterprise is

“doomed to fail” if its sustainability depends upon the continued recruitment

of additional investors at lower and lower levels of the pyramid. Pyramid

schemes require top level investors to recruit a larger number of investors at

the next level to turn a profit and, in turn, those investors must recruit a larger

number of investors at the next level in order to turn a profit. As long as the

next level is and can be bigger, the members will be profitable. A pyramid

scheme is analytically doomed to fail because, eventually, there cannot be a

bigger level and investors who are at the bottom when the scheme runs out

of potential investors will inevitably lose their money. This structure is easy

to identify in something like the “airplane game” where the entire enterprise

exists solely to pay money up the pyramid, which became the salient news

media touchstone for what a pyramid scheme looked like at its simplest.

Here, there are no goods or services being exchanged and the scam is much

more evident.

The analytically more difficult question occurs when a company

includes a product or service in their model, as is always the case in an MLM

by definition. A product fundamentally changes the nature of the agreement

or promise: any financial investment looks, legally and rationally, more akin

to a traditional financial investment. The buy-in to an MLM looks closer to a

franchise or licensing agreement even though it is not one—a normalized

business opportunity whereby a participant exchanges money for permission

to sell (and potentially turn a profit)—and becomes legally distanced from a

simple exchange of money for a promise of an impossible return. The idea

that income is not guaranteed feels more comfortable and is often legal when

goods and services are involved: this is, after all, the normal risk of running

a business. However, the existence of a product is likely insufficient to defeat

concerns about an enterprise being doomed to fail. Courts have not held that

a product alone is sufficient and have only considered it as one factor. The

doomed to fail term of art is not, in fact, the only way that courts look to

See, e.g., Are All MLM Companies Pyramid Schemes Doomed to Fail by Design, QUORA,

https://www.quora.com/Are-all-MLM-companies-pyramid-schemes-doomed-to-fail-by-design (last

visited July 26, 2021); Pyramid Scheme, WIKIPEDIA,

https://en.wikipedia.org/w/index.php?title=Pyramid_scheme&oldid=1012435749 (last visited July 26,

2021).

Elizabeth Neuffer, ‘Airplane’: High-Stakes Chain Letter, N.Y. TIMES, Apr. 7, 1987, at B7.

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16 FIU Law Review [Vol. 18:001

evaluate whether an enterprise is a pyramid scheme. We consider that in the

next section.

C. The Amway Rules: Our Analytic Substitutions

The still-leading case on determining whether an MLM is operating as

a pyramid scheme is the FTC decision in Amway.

This 1979 case leaves

open the possibility that an MLM could be legally cognizable as a pyramid

scheme while, at the same time, decidedly determining that Amway is not

one. Amway, founded in 1959 by Jay Van Andel and Richard DeVos, sells

health, beauty, and cleaning products, and has also been the defendant in

various cases alleging that their operation is a pyramid scheme.

LuLaRoe, Amway has never been found liable for or guilty of acting like a

pyramid scheme. However, the case explicitly lays out some ground rules on

understanding the relationship between pyramid schemes and MLMs that are

still cited today.

The FTC, in Amway, looked to Amway’s own rules as a proxy for

determining how the company functioned in relation to unethical,

exploitative, and illegal consumer behavior.

The Amway Rules, a set of

Amway’s own rules for consultancy and distribution, speak to the implicit

legal question defined from this action: Are the consultants operating as

distributors or as customers?

In other words, is the profit primarily from

recruitment? Notably, this test is a reframing of the “doomed to fail” idea that

is both more specific and more potentially applicable to an enterprise that

does involve the distribution of products. In other words, the Amway Rules

still work within the same conceptual arena as the “doomed to fail” heuristic.

However, the Amway Rules now explicitly define the tests in relation to what

type of person is providing the profit: consumer or distributor. The material

rules, together sufficient to establish that Amway’s profits are primarily from

recruitment, were the Seventy Percent Rule, the Ten Customer Rule, and the

Buy-Back Rule.

The Seventy Percent Rule and the Ten Customer Rule both pertain to

the allocation of bonuses among consultants. In order for an individual

Amway consultant to qualify for Amway’s bonus framework—money on top

Amway Corp., 93 F.T.C. 618 (1979). Per Chevron, courts will defer to the FTC’s interpretation

as Congress—and courts—had not previously spoken on the issue. Chevron, U.S.A., Inc. v. NRDC, Inc.,

467 U.S. 837, 843–44 (1984).

See generally Complaint, Amway Corp., 93 F.T.C. 618 (No. 9023); Pokorny v. Quixtar, Inc.,

601 F.3d 987, 990 (9th Cir. 2010).

Amway Corp., 93 F.T.C. at 710.

Id. at 716.

Id.

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2023] Weaponizing Rhetoric 17

of ordinary commission from a resale—a consultant must sell 70% of their

inventory to others and the others must consist of ten or more other

individuals.

We argue that these rules seek to ensure that consultants are

distributing rather than purchasing items “as customers” (either intentionally

or incidentally becoming the final destination because the items will not or

cannot be redistributed).

However, this is largely an aesthetic concern as less than 1/5 of MLM

consultants meet the requisite sales threshold to qualify for bonuses.

practice, the rule does not do much other than theoretically disincentivizing

an individual distributor from purchasing a large amount of product in

exchange for a bonus. This type of behavior, according to LuLaRoe’s own

disclosure statements, does not account for the ways in which most of their

distributors actually interact with the company.

This is, as we shall argue,

one specific way of diminishing predation but it does not have a widespread

impact. The Amway bonus rules work to incentivize some aspects of

behavior vis-à-vis bonuses but still does not take burden off the distributor

for recruitment rather than sales. If anything, these rules incentivize more

recruitment because recruitment guarantees that more product will go to more

people, which will meet the requirements for bonuses, and will presumably

provide a desirable source of income.

Amway’s Buy-Back Rule stipulated that Amway would accept returns

of and offer refunds on unsold merchandise should a consultant choose to

sever their relationship with the company.

Although terms and conditions

may apply—the company need not buy back at the full purchase price or

might exclude certain types of merchandise—this does provide substantial

assurance that the consultant is not the final home of the merchandise and is

not, functionally, a customer. Compared to the specific rules governing bonus

allocation, the buy-back rule seems substantially more robust. It protects

against making the distributor into a customer and is thereby more effective

at alleviating some of the more exploitative business practices.

Neither rule on its own is necessary, but each may or may not be legally

sufficient individually though their individual sufficiency has yet to be tested.

However, the Amway Rules are models for how to parse out the legal

distinction between a pyramid scheme and a legitimate enterprise. Although

the universe of behaviors modified by the Amway Rules is extraordinarily

Id.

LuLaRoe reported in their 2020 income disclosure statement that only 14.62% of their

consultants received bonuses through the leadership compensation plan. Hayley Peterson, LuLaRoe is

Making Some Women Rich, While Thousands Struggle to Make a Profit, YAHOO FIN. (Mar. 16, 2017),

https://finance.yahoo.com/news/lularoe-making-women-rich-while-153814803.html.

Id.

Amway Corp., 93 F.T.C. at 732.

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18 FIU Law Review [Vol. 18:001

small, MLMs can and do adopt the Amway Rules as a mode of signaling their

legal legitimacy and the FTC can and does use the Amway Rules to establish

that standard.

This is, as it stands, the best understanding of the current state

of the law governing MLMs and pyramid schemes. Ultimately, these rules,

we argue, allow for massive gaps that allow for additional behaviors that are

not legally recognized as problematic. Furthermore, we reiterate that in

Amway, the FTC took Amway’s lead, allowing the business under

investigation to set the standard for how businesses of its type should

function.

This allows MLMs to operate using standards that they voluntarily

constructed.

D. Published Administrative Guidance from the FTC and

SEC

Beyond the Amway Rules, the FTC and SEC offer published guidance

on distinguishing between pyramid schemes and what they call “legitimate

MLM business opportunities.”

We take this guidance at face value and

interpret these publications as indicative of problematic business behaviors

that could, theoretically, be subject to regulatory authority. In this section, we

synthesize these documents, drawing out analytically what the FTC and SEC

take to be problematic behaviors. What the agencies suggest potential

consultants look for can be broken down into three types of behaviors: first,

the use of bombastic rhetoric in recruitment; second, the framing of the

opportunity as a recruiting opportunity rather than a sales opportunity; and,

third, behaviors that position the consultant as the buyer. We take each of

these in turn and analyze their limitations, ultimately arguing that the

distinctions offered between “legitimate MLM business opportunities” and

pyramid schemes are so hollow as to be meaningless. Once again, we

conclude that the analytic category of the pyramid scheme is ultimately

legally toothless.

The FTC and SEC warn against promoters who utilize bombastic

rhetoric in recruiting additional participants.

They warn against the

deployment of rhetoric that seems “too good to be true”: promises of high

returns in a short time period or extravagant promises about earning potential,

FTC v. BurnLounge, Inc., 753 F.3d 878, 883 (9th Cir. 2014) (citing Amway Corp., 93 F.T.C. at

716).

See discussion supra Section IV.C.

Multi-Level Marketing Businesses and Pyramid Schemes, supra note 6; Beware of Pyramid

Schemes Posing as Multi-level Marketing Programs, U.S. SECS. & EXCH. COMM’N (Oct. 17, 2013)

[hereinafter Beware of Pyramid Schemes], https://www.sec.gov/oiea/investor-alerts-bulletins/investor-

alerts-ia-pyramid.

Beware of Pyramid Schemes, supra note 64.

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2023] Weaponizing Rhetoric 19

easy money or passive income, or emotional/high-pressured sales tactics

(such as saying that the opportunity is time sensitive).

On its face, this

subset of warnings makes a great deal of sense. They are functionally

suggesting that manipulative advertisement is a sign of overall manipulative

business practices.

However, using this to parse out pyramid schemes from “legitimate

MLM business opportunities” is incredibly difficult and over-emphasizes the

distributor rather than the company for which they distribute. For example,

some MLM distributors might routinely deploy this language even if that

language is not specifically sanctioned by the company they sell for; while,

at the same time, other distributors for the same company might not utilize

bombastic rhetoric. As a warning sign, this overemphasizes the individual

choices of individual distributors. A person who only encounters distributors

who do not use this rhetoric are not, in fact, encountering a meaningfully

different type of business—they are just encountering a slightly different

recruitment tactic. This warning does little to emphasize how the business

itself operates.

The agencies further warn against promoters who pitch the opportunity

as one about recruitment rather than sales and they warn against structural

features of the enterprise that position the opportunity as one about

recruitment rather than sales.

That is, they warn against individuals joining

companies in order to become recruiters rather than salespeople. The FTC

identifies this as a prominent warning sign: “Promoters emphasize recruiting

new distributors for your sales network as the real way to make money. Walk

away. In a legitimate MLM program, you should be able to make money just

by selling the product.”

The SEC makes the structural critique implicit by

warning against a lack of demonstrated revenue from retail sales to show that

the MLM generates income by selling products and services to people outside

the enterprise. In other words, it’s not a good sign if the recruiter cannot

establish that consultants generate income by selling products or services to

people who are not also consultants. Further, they warn against complex

commission structures that reward something other than sales, usually

recruitment, made to individuals, which are likely translatable into the bonus

structures discussed above.

Facially, this is an obvious indictment against predatory business

practices. It makes sense that businesses that focus on recruitment rather than

sales would be likely to operate as pyramid schemes because the emphasis

on recruitment suggests that new levels of distributors are where the profits

Id.

LuLaRoe Pyramid Scheme Allegations, supra note 42.

Multi-Level Marketing Businesses and Pyramid Schemes, supra note 6; see also LuLaRoe

Pyramid Scheme Allegations, supra note 42.

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20 FIU Law Review [Vol. 18:001

are coming from. However, it is not clear how this is a difference-making

trait, and the overemphasis on companies being explicit about their emphasis

on recruitment is problematic. These warnings do not emphasize patterns of

behaviors that have the outcome of emphasizing recruitment over product

sales—such as, flooding the market with sellers such that the product is

oversaturated, offering bonus structures for recruitment, or allowing

recruiters to earn money off of every recruitee’s sale, all of which are normal

MLM behaviors—but instead, focus on whether or not the company is

pitching itself as emphasizing recruitment.

Again, this focuses on the

behaviors of distributors, who are the ones who would be making these

claims, rather than on companies who are likely to emphasize their products

while maintaining practices that emphasize recruitment. In other words, none

of the FTC or SEC warning signs adequately warn against the emphasis on

recruitment.

Finally, the FTC and SEC warn against structural features in the

enterprise that position the consultant as the customer.

The SEC warns

against enterprises where buy-in is required, that is, if a potential consultant

is required to pay to participate within the program.

The FTC offers a more

holistic warning against companies where consultants buy more products

than they personally use or can resell in order to stay active in the company

or to qualify for bonuses.

The concern about qualifying for bonuses seems

to match exactly with the Amway Rules, but the warning against buying to

stay active does work to demystify the role of products as buy-in. It is clear

that the existence of a product might not be sufficient to distinguish between

a legitimate business opportunity and a pyramid scheme or other illegal

enterprise.

This is, at best, confusing guidance. Paying to participate is difficult to

meaningfully define, particularly if one is parsing a “legitimate MLM

business opportunity” from an illegal pyramid scheme. Directly giving

money to an upline in exchange for an opportunity rather than wholesale

products or licensing to sell under a particular company’s name is much more

obviously suspect. Again, MLMs by definition do not do that: the buy-in

money comes with an inventory of products.

The FTC guidance allows for

the existence of a product but does not clarify how a potential distributor

Multi-Level Marketing Businesses and Pyramid Schemes, supra note 6.

Id.; Beware of Pyramid Schemes, supra note 64.

Beware of Pyramid Schemes, supra note 64; Multi-Level Marketing Businesses and Pyramid

Schemes, supra note 6.

Multi-Level Marketing Businesses and Pyramid Schemes, supra note 6; Beware of Pyramid

Schemes, supra note 64.

Multi-Level Marketing Businesses and Pyramid Schemes, supra note 6; Beware of Pyramid

Schemes, supra note 64.

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2023] Weaponizing Rhetoric 21

could determine what practices specifically lead to distributors over-buying

or why those company behaviors differ from the ordinary costs of starting a

business.

Certainly, MLMs have practices that promote over-buying:

LuLaRoe, for example, does not allow distributors to pick their inventory and

operates on a model whereby they have limited runs of extremely popular

patterns, encouraging consultants to buy large bundles of product in the hope

of getting the specific items that are more likely to sell.

The guidance, once

again, points to patterns of behavior from distributors—that may be difficult

to impossible for a potential distributor to spot or identify—rather than on the

corporate behavior that encourages those warning signs to crop up.

The FTC and SEC guidance to consumers is not a set of legal standards.

Notably, although there is substantial overlap, the boundaries discussed here

go beyond those advanced by the FTC in Amway because the stakes are

lower. That is, there is a broader universe of potentially suspicious behaviors

under the agency guidelines. Here, the agencies are offering warning signs to

identify what could be a pyramid scheme rather than actually testing for

pyramidal structure as they would in a regulatory action. Yet, even then, they

fall short. All MLMs at some point or another meet one or more of these

warning signs: consultants regularly make “limited time” recruitment offers

and income disclosure statements that routinely establish that only the top

percent of consultants make income from the enterprise.

However, none

seem to ever cross the line from “warning signs” to “stop signs” in an actual

legal proceeding. The guidance ultimately straddles the line between critique

and acceptance of the MLM business model. Here we have argued that in

some ways, the practices of the companies are apparent in this guidance, yet

they refrain from fully implicating MLMs, allowing there to exist a category

of “legitimate MLM business opportunity” without meaningfully defining

how that differs from a pyramid scheme.

Therefore, although the FTC and SEC both advise consumers that some

MLMs can be pyramid schemes, there is a tendency to identify a potential

other option—a “legitimate MLM business opportunity”—without providing

a robust definition of that for comparative purposes. That is, all of the

guidance is predicated on the idea that there does exist such a thing as a

“legitimate MLM business opportunity,” but what that would actually

meaningfully look like to a consumer is an open question. What the guidance

does in practice, then, is functionally distinguish MLMs generally from

Multi-Level Marketing Businesses and Pyramid Schemes, supra note 6; Beware of Pyramid

Schemes, supra note 64.

McNeal, supra note 48.

See, e.g., 2022 U.S. Income Disclosure, AMWAY, https://www.amway.com/en_US/income-

disclosure (last visited Jan. 25, 2023); Earnings Representation, MARYKAY, https://www.marykay.ca/en-

ca/pages/earnings-representation (last visited Jan. 25, 2023).

1 – ALBRECHT (DO NOT DELETE) 12/29/2023 3:44 PM

22 FIU Law Review [Vol. 18:001

pyramid schemes. Because the reader cannot meaningfully parse the

distinction between legitimate and illegitimate MLMs, the use of “legitimate

MLM business opportunity” functionally serves to legitimize all MLMs

discursively.

Furthermore, as we have indicated throughout this section, the guidance

rests almost exclusively on the practices of individual distributors, rather than

offering a holistic or robust look at the systemic practices of companies or

the business model in general. The immediate impact of this means the

effectiveness of the warnings to consumers varies tremendously based on the

practices of the individual-level distributors each consumer may encounter.

A consumer may encounter distributors who do not use bombastic rhetoric

or rhetorically emphasize recruiting, but that do still rely on recruitment

instead of selling products. Furthermore, this warning pattern distracts from

the power of the company and the subtler ways that MLMs can and do exploit

customers. Importantly, this guidance suggests that the people responsible

for the harms caused by pyramidal business practices are the individual level

distributors who are most likely to do the behaviors described above. This is

a concerning pattern of guidance because, ultimately, we argue, regulating

individual distributors is not an effective solution given that the problems

delineated are company- or industry-wide.

Ultimately, the legal relationship between MLMs and the category of

pyramid schemes is an open question. There has been very little traction in

regulating MLM behavior or remediating harms related to MLM behavior

through the pyramid scheme framework. MLMs are unlikely to face

sanctions as pyramid schemes. If anything, as we have argued, the MLMs

themselves are able to utilize the undefined and underexplained, but assumed,

distinction between “pyramid scheme” and “legitimate MLM business

opportunity” to directly evade being lumped in with pyramid schemes

without being meaningfully structurally distinct. In the next section, we begin

to discuss how that assumed but not substantive difference between “pyramid

scheme” and “legitimate MLM business opportunity” is actively weaponized

by MLMs in order to emphasize their legitimacy without evidence to support

it.

V. L

ULAROE CASE STUDY

We argue here that the lack of suitable legal protection against predatory

MLMs does more than leave consultants and customers vulnerable—it

actually creates a weapon of legitimacy for predatory MLMs. As we have

discussed above, there are massive gaps in the regulatory framework, which

allow for predatory behavior from MLMs to be legally legitimized. Here, we

argue that this legitimization is used by participants in the MLMs to recruit

1 – ALBRECHT (DO NOT DELETE) 12/29/2023 3:44 PM

2023] Weaponizing Rhetoric 23

additional participants. Specifically, we argue that distributors do what the

FTC and SEC warned about above, entirely unchecked by the companies they

sell for. Using conversational text data from the popular internet forum

Reddit.com (“Reddit”), we analyze the process by which legal rhetoric

surrounding pyramid schemes is used to distinguish an MLM company from

an “illegal pyramid scheme” and how the protections of law are both

confusing and insufficient in the minds of ordinary people. We look at two

levels of discourse: first, the rhetoric from distributors distinguishing

themselves from participants in pyramid schemes and, second, the rhetoric

around that distributor rhetoric by ordinary people discussing the companies.

We do this using LuLaRoe as a case study.

LuLaRoe is a massive MLM that is best known for selling leggings with

outlandish patterns.

In the eleven years since LuLaRoe’s 2012 founding,

the company has become among the most notorious; and we argue that it is

the site of intense discursive contestation. There are a number of competing

stories about what LuLaRoe does, what LuLaRoe means, and how LuLaRoe

functions within society. The self-told story of LuLaRoe is one of a

struggling mother making a fortune in modest, size-inclusive clothing.

The

founders emphasize this story, building up a narrative of their humble

beginnings and painting a picture of clothing with strong mass appeal.

However, critics identify the consequences of LuLaRoe’s business strategy,

saying that it is actually:

[T]he story of rural and suburban disenfranchisement and the

MLMs that offer desperate American women a chance at

clawing their way out. They’ve become part of the fabric of

suburban America, as cherished and inevitable as barbeques

and the county fair . . . it’s a genius manipulation of rural and

suburban American societal norms.

This suggests that LuLaRoe is something much more sinister, utilizing

the narrative of humble beginnings to trap others with false promises. At one

end of the spectrum, LuLaRoe’s own marketing materials suggest an

interestingly disruptive company that fills a unique market need (modest,

aesthetically pleasing clothing specifically for mothers). At the other,

See generally LULAROE, https://www.lularoe.com/ (last visited Dec. 8, 2023); Claire Suddath,

Thousands of Women Say LuLaRoe’s Legging Empire is a Scam, B

LOOMBERG (May 7, 2018, 4:39 PM),

https://www.bloomberg.com/news/features/2018-04-27/thousands-of-women-say-lularoe-s-legging-

empire-is-a-scam#xj4y7vzkg.

See About LuLaRoe, LULAROE, https://news.lularoe.com/about-lularoe.

Id.

Alden Wicker, MultiLevel-Marketing Companies like LuLaRoe are Forcing People into Debt

and Psychological Crisis, QUARTZ (Aug. 6, 2017), https://qz.com/1039331/mlms-like-avon-and-lularoe-

are-sending-people-into-debt-and-psychological-crisis/.

1 – ALBRECHT (DO NOT DELETE) 12/29/2023 3:44 PM

24 FIU Law Review [Vol. 18:001

critiques of the company suggest a predatory scheme that utilizes that very

rhetoric in order to exploit the customers whose needs they claim to address.

We argue that the truth is much closer to the exploitation end of the

spectrum. By unpacking how this particular company actually functions—in

addition to how LuLaRoe and its consultants and customers talk about the

company—we are able to show how LuLaRoe operates specifically and

intentionally in relation to the regulatory frameworks discussed above.

Understanding how their language works helps us understand the actual

narratives at play for the company and, subsequently, what persuasive

techniques they are using in order to recruit participants and make money. In

this section, we delve into our case study, explaining our selection criteria,

and unpack how LuLaRoe functions to evade regulation.

A. Why LuLaRoe?

LuLaRoe is a compelling case study of MLM practices for logistical and

legal reasons: their recency, slew of legal troubles, relatively high (and

unstable) buy-in costs, and the relatively heavy demonstrated use of MLM

bonus structures that is most at stake in defining pyramid schemes in Amway.

However, LuLaRoe also has an uncommonly strong retail presence and buy-

back guarantee that makes it less likely to be sanctioned under existent

pyramid scheme regulations. They have a complicated interplay with the

definitional framework discussed above. Although the particulars of how

LuLaRoe operates might differ from other MLMs, we argue that the ideology

driving their particular business strategies (fundamentally evading capture

under pyramid scheme regulatory frameworks) is actually quite similar to

other MLM companies. Therefore, we are able to use LuLaRoe as an

exemplary case that allows us to deeply interrogate particulars even as the

case maintains its generalizability.

We begin with a brief history of LuLaRoe told through these salient and

shifting features—legal troubles, buy-in costs, bonus structures, retail

presence, and buy-back guarantees—before transitioning into the rhetorical

data project. This data project transforms the problem of MLMs from one

characterized by a lack of protections, to one where the importance of the law

actually grants some legitimacy and permanence to MLMs. In other words,

the data project illustrates what we were previewing above: the ways in which

pyramid scheme-related rhetoric functions to legitimize MLMs and create

confusion and, even beyond that, pessimism about the law itself. Regulatory

loopholes are utilized not just as loopholes, but also as rhetorical strategies

for recruiting additional members: regulation becomes its own kind of

bombastic rhetoric offering promises to recruits of legality and legitimacy.

1 – ALBRECHT (DO NOT DELETE) 12/29/2023 3:44 PM

2023] Weaponizing Rhetoric 25

LuLaRoe is a women’s fashion company founded by Mark Stidham and

DeAnne Brady in 2013, primarily known for selling heavily-patterned,

“buttery soft” leggings.

By 2017, LuLaRoe had grown from self-described,

single family, hand-sewing maxi skirts into a retail juggernaut worth $2

billion and with over 80,000 “independent fashion retailers”—IFRs, the

LuLaRoe-specific terminology for distributors—concentrated mostly outside

of large urban cities.

The company scaled very quickly to become the

widespread MLM it is today, moving massive amounts of product to and

through a large number of distributors.

As we have discussed above,

LuLaRoe’s turbulent rise to the top of the MLM fashion industry has included

lawsuits for improper taxes on retail goods, appropriated copyrighted

artwork, non-payment to manufacturers, non-payment to the postal service,

and, significantly, multiple rounds of pyramid scheme accusations⎯most

notably a 2019 filing by the Washington State Attorney General that resulted

in a $4.75 million settlement.

B. The Problems of LuLaRoe

Although we argue that LuLaRoe is structurally similar to other MLMs,

it has two key distinguishing features. It is distinguishable from many other

MLMs first, because it has historically involved a high start-up cost—

although recently their start-up costs have shifted seemingly in response to

litigation—and second, because it requires that distributors maintain a

collection of an expensive inventory of clothing in many sizes.

A class

action filing in March of 2019 explains that the buy-in costs range from

$2,000 to $9,000 for first orders of clothing.

This is uncommonly high;

many other MLMs require a buy-in for a starter pack retailing $250 or less.

See About LuLaRoe, supra note 78.

Richard Kestenbaum, This Retailer Went from Zero to $2 Billion in Four Years, FORBES (Oct.

17, 2017, 7:45 AM), https://www.forbes.com/sites/richardkestenbaum/2017/10/19/this-retailer-went-

from-zero-to-2-billion-in-four-years/?sh=309b37dd5fa3. In episode one of the LuLaRich docuseries,

DeAnne describes the early years involving herself personally handmaking 20,000 maxi skirts. This seems

implausible for one person in even four years, so it is difficult to get a handle on who was working on

what in those early days and how production scaled. LuLaRich, supra note 1.

Horton, supra note 4.

LuLaRoe to Pay $4.75 Million, supra note 48; Suddath, supra note 77.

See Become a Fashion Entrepreneur, LULAROE, https://www.lularoe.com/join-lularoe

(showing start-up costs) (last visited Jan. 25, 2023); Kirsten Fleming, How LuLaRoe Cost Some Women

Their Homes, Cars, Savings, and Marriages, N.Y. POST (Sept. 20, 2021, 10:46 AM),

https://nypost.com/2021/09/18/lularoe-cost-some-women-their-homes-savings-and-marriages/.

Sperring v. LLR, Inc., No. 5:19-cv-00433, 2019 U.S. Dist. LEXIS 247160, at *6 (Cal. Dist. Ct.

July 23, 2019).

See, e.g., TASTEFULLYSIMPLE, https://join.tastefullysimple.com/ (with the most expensive kit

priced at $99); SCENTSY, https://scentsy.com/join (with kits starter packs priced at $99).

1 – ALBRECHT (DO NOT DELETE) 12/29/2023 3:44 PM

26 FIU Law Review [Vol. 18:001

Moreover, as we mentioned briefly above, distributors do not get to choose

the patterns of clothing that they purchase as LuLaRoe ships orders in blind

bundles; this leaves retailers constantly re-purchasing in the hopes of

procuring desirable patterns and in-demand sizes.

Heightened levels of

inventory accumulation has tangible consequences for the tens of thousands

of women who have left the company. LuLaRoe’s practice of blind bundling

leaves many distributors with massive amounts of inventory when they

decide to leave, and it has historically been unclear whether or not LuLaRoe

would “buy-back” that unsold, unwanted inventory and, if so, if that would

be a full refund. Notably, LuLaRoe’s buy-back policies have changed

frequently, with little warning, and are often unclear as to their specific

applicability to common garments. LuLaRoe’s combination of high buy-in

costs and inconsistent and confusing buy-back policies leaves distributors

taking an atypically large financial risk when joining the company.

That risk feels even bigger considering the low potential for reward.

Yearly disclosure statements—of LuLaRoe in particular and of MLMs as a

category—tell a profoundly negative story about the financial realities of

participating in MLMs as a distributor.

Most distributors do not make any

money at all from their participation.

Even more troublingly, most

participants lose money through these “business opportunities.”

But the

stories told in litigation underscore how truly volatile this situation is. In a

class action complaint filed in March of 2019, three plaintiffs explained the

extent of financial ruin possible for former LuLaRoe consultants that they

alleged was a result of LuLaRoe’s culture of blind bundling merchandise to

distributors.

Plaintiff Tabitha Sperring pled that she was left with $16,000

in credit card debt and $11,000 in unsellable inventory; plaintiff Paislie

Marchant pled that she was left with $10,000 in unsellable inventory; and

This incentivizes massive and frequent purchases in the hopes of obtaining patterns that are

desirable to customers. Note that retailers could theoretically select sizes (with some exceptions), but that

scarcity of wholesale items to purchase often left retailers to buy whatever sizes they could or even unable

to purchase new inventory at all.

See LuLaRoe to Pay $4.75 Million, supra note 48; Ginger Rough, Lularoe Abruptly Changes

Return Policy; Consultants Say They Are Out Thousands, WHAS11 (Sept. 15, 2017, 8:00 AM),

https://www.whas11.com/article/news/lularoe-abruptly-changes-return-policy-consultants-say-they-are-

out-thousands/417-475108523; Angela Kennecke, Former LuLaRoe Consultant Stuck With $5k in

Inventory, KELOLAND (Nov. 1, 2017, 10:02 PM), https://www.keloland.com/news/investigates/former-

lularoe-consultant-stuck-with-5k-in-inventory/.

2020 LuLaRoe Income Disclosure Statement, SEQUENCE INC. FORENSIC ACCT.,

https://sequenceinc.com/fraudfiles/wp-content/uploads/2016/12/lularoe2020.pdf (last visited Sept. 19,

2023); AG Ferguson Sues LuLaRoe, supra note 47.

See 2020 LuLaRoe Income Disclosure Statement, supra note 90.

See id.

See Class Action Complaint at 4–5, 21, Sperring v. LLR, Inc., No. 5:19-cv-00433, 2019 U.S.

Dist. LEXIS 247160 (Cal. Dist. Ct. July 23, 2019).

1 – ALBRECHT (DO NOT DELETE) 12/29/2023 3:44 PM

2023] Weaponizing Rhetoric 27

plaintiff Sally Poston pled that she lost $22,000.

These are financial

consequences that outlast the yearly disclosures of MLMs and foreshadow

the scope of the economic costs of MLMs to ordinary Americans.

Unpacking the bonus structure reveals a massively top-weighted

structure for consultants that is contingent on gross disparities in the

distributors’ incomes, generally. According to LuLaRoe’s 2020 income

disclosure statement, the median IFR gross profit was $1,444.65.

Additionally, 19.2% of IFRs made $0 or less, while 50.1% made between $1

and $4,999 (notably covering a substantial range of outcomes).

However,

only 2.35% of IFRs made over $75,000.

This means that the distributor

experience is heavily skewed to earning less than $5,000 per year or losing

money through the endeavor.

Still, there are distributors who make

substantially more, earning a very real middle- or upper-class salary annually

from the company. This is a massive disparity in outcomes.

The reason for this disparity is LuLaRoe’s Leadership Bonus Plan.

Under this plan, consultants earn bonuses based on the total pieces sold by

the entire TEAM (“Together, Everyone Achieves More”) in the downline.

That means that the highest-ranking consultants receive 5% of the dollar

amount of inventory of all the consultants below them, even those they did

not directly recruit.

However, 85.38% of distributors make no money under

the Leadership Compensation plan.

100

This is not facially illegal or even

unethical. It is easy to see how it could feel or seem unfair. For example,

founder DeAnne Brady herself had consultants disclose the discrepancy

between their commissions and actual retail sales at a leadership convention

in 2017—which underscored the lack of a relationship between sales and

income, despite that being the purported business structure.

101

Consultants

reported that their monthly bonus checks ranged from $85,000 to $307,000,

while their personal retail sales ranged from $12,000 to $25,000.

102

This

demonstrates that, on average, a vast majority of income for high-ranking

consultants is coming from recruitment incentives rather than selling retail

products.

See id. at 5.

See 2020 LuLaRoe Income Disclosure Statement, supra note 90.

Id.

Called Out, LuLaRoe: The Hot New Pyramid Scheme, MEDIUM (Mar. 7, 2017),

https://medium.com/@calledout/lularoe-the-hot-new-pyramid-scheme-82905385c9de.

100

Gemma Davison, “It Was Very Toxic!” The Bizarre Rise and Fall of LuLaRoe, VERIFIED.ORG

(Oct. 12, 2021), https://www.verified.org/articles/guides/the-bizarre-rise-and-fall-of-lularoe.

101

LuLaRoe to Pay $4.75 Million, supra note 48.

102

Id.

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28 FIU Law Review [Vol. 18:001

Despite this demonstrated use of incentive structure tactics, which ought

to raise a red flag per the FTC’s own guidelines, LuLaRoe can likely

distinguish itself from pyramid schemes because a majority of consultants

(especially those comprising the 99.84% in the lowest incentive tier) make

their money exclusively by actually selling clothing and the company

currently, as of this writing, has a seemingly generous buy-back policy.

103

For example, in 2016, LuLaRoe claimed 72.63% of its income through

selling clothing alone.

104

This reality can co-exist with massively inflated

bonuses at the top of the proverbial pyramid, since a vast majority of

consultants lose money or make very little money. LuLaRoe as a company

may make 72.63% of its income through selling clothes; however, that figure

does not specify to whom.

105

If much of those sales are taking place within

the company (to distributors who, due to an oversaturated market, cannot sell

their inventory to outside consumers), that tells a story that differs profoundly

from an ordinary retail opportunity.

LuLaRoe also has a 90% to 100% buy-back program that seems to

follow the precedent set by Amway.

106

However, this program excludes a

large amount of limited edition merchandise and numerous consultants report

being unable to secure their full refund under the buy-back program,

especially after LuLaRoe abruptly changed the terms of the buy-back

program from 100% of wholesale investment to 90% in 2017.

107

The buy-

back structure is one that exists on paper, passing the bare minimum Amway

test, but does not actually exist or work in practice. Both the misleading

nature of the compensation structure, and buy-back system further illustrate

how an MLM such as LuLaRoe might escape the legal categorization of

‘pyramid scheme’ without doing anything substantive to protect their

consultants, compared to the victims of legally acknowledged pyramid

schemes.

VI. M

ETHODS AND DISCOURSE DATA

108

In this section, we unpack our case study and thematically analyze the

results of our data collection. This section proceeds in two parts. First, we

103

See 2020 LuLaRoe Income Disclosure Statement, supra note 90.

104

Wicker, supra note 80.

105

Id.

106

LuLaRoe to Pay $4.75 Million, supra note 48.

107

Desiree Stennett, LuLaRoe Just Changed its Return Policy…and Retailers are Absolutely

Livid, PENNY HOARDER (Oct. 11, 2017), https://www.thepennyhoarder.com/make-money/lularoe-

changes-return-policy/.

108

Please note that Section VI consists of original data collected by the authors and therefore

contains few citations that are attributable to external sources.

1 – ALBRECHT (DO NOT DELETE) 12/29/2023 3:44 PM

2023] Weaponizing Rhetoric 29

describe our methodological approach and justify our particular data

selection. Second, we discuss the themes we found in the data. We break

these themes into four discursive categories: (1) pyramid schemes as

conceptually illegal, (2) general incomprehensibility surrounding the legal

definition of pyramid schemes, (3) pessimism about the protective capacity

of the law, and (4) layperson suggestions of alternative litigation strategies in

light of this pessimism.

A. Methods

In order to better understand the tangible consequences of the legal grey

area of multi-level marketing, we conduct discourse analysis on a universe

of discussion about MLMs in general and LuLaRoe in particular. Discourse

analysis provides a set of tools to interpret a phenomenon in a theoretically

informed and insightful way.

109

In capturing a fuller universe of discussion

around LuLaRoe, we avoid assuming what people are discussing and avoid

the sterility of a laboratory experiment. Instead, we are able to study a

snapshot of a community, interacting naturally in accordance with their own

substantive understandings and their own understandings of what issues are

important.

Thus, our data collection procedure began with the identification of a

suitable community for text extraction. We targeted platforms where there

would be discussion from MLM retailers, former MLM retailers, and MLM

product consumers. We made this choice not only to integrate a variety of

perspectives, but also to more fully represent the pipeline flow of

information, from upline to downline, to consumers. Reddit emerged as a

viable platform for this research due to its public accessibility, the prevalence

of active discussions, and the way comments and threads function on the site.

Reddit has previously been used in a variety of social science and humanities

research for discourse analyses efforts similar to ours.

110

Reddit is organized

109

Keith Jacobs, Discourse Analysis and Its Utility for Urban Policy Research, 24 URB. POL’Y &

RSCH. 39, 39 (2006).

110

See generally Nicolas Schrading et al., An Analysis of Domestic Abuse Discourse on Reddit,

PROC. 2015 CONF. ON EMPIRICAL METHODS NAT. LANGUAGE PROCESSING 2577 (2015), for an analysis

of domestic abuse discourse on Reddit forums; Shaina J. Sowles et al., A Content Analysis of an Online

Pro-eating Disorder Community on Reddit, 24 BODY IMAGE 137 (2018), for an analysis of pro-anorexia

communities on Reddit forums; Emma I. Brett et al., A Content Analysis of JUUL Discussions on Social

Media: Using Reddit to Understand Patterns and Perceptions of JUUL Use, 194 DRUG & ALCOHOL

DEPENDENCE 358 (2019), for an analysis of perceptions and discussions of JUUL use on Reddit; Kamran

Munawar & Vinay Prabhu, Radiology on Reddit: A Content Analysis and Opportunity for Radiologist

Engagement and Education, 50 CURRENT PROBS. DIAGNOSTIC RADIOLOGY 362 (2021), for an analysis

of community discourse surrounding Radiology on Reddit; Nicholas Botzer et al., Analysis of Moral

Judgment on Reddit, 10 IEEE TRANSACTIONS ON COMPUTATIONAL SOC. SYS. 947 (2023), for an analysis

of Reddit usage to evaluate questions of moral judgement; and others.

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30 FIU Law Review [Vol. 18:001

into a series of communities called subreddits, where users opt into subreddits

of interest. There are a number of engagement behaviors available to users

including: authoring posts, responding to others’ posts, upvoting or

downvoting posts or threads, and giving awards to other users. This variety

of engagement types creates a more dynamic community of discussion and

endorsement that could be analyzed in a survey experimental setting. This is

particularly useful to our analysis as we seek to understand community

consensus and perceptions overall, rather than solely at the individual level.

We mined three active subreddits for threads that specifically reference

LuLaRoe and coded the resultant posts into a set of themes that typifies

understandings of pyramid schemes and the legality of MLMs.

111

describe the selected communities in Table 1 below. We balanced the

selected subreddits across three vectors: activity, specificity, and pro-anti

MLM sentiment. It was generally difficult to find subreddits that were

explicitly pro-LuLaRoe. However, historically, we observed that r/LuLaRoe

used to be more positive toward the brand and that historical text was

intentionally included in this analysis.

111

Reddit is a public facing platform where users comment pseudo-anonymously under a

consistent username. The following section contains quotes taken from commenters in the three subreddits

mentioned in Table 1. While this information is public, we have redacted usernames to further protect the

privacy of commenters.

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2023] Weaponizing Rhetoric 31

ABLE 1: SUBREDDITS USED IN DATA COLLECTION

Name

Users

Rationale for Inclusion

r/Antimlm

637K

This is by far the largest MLM-

related community on Reddit,

making it a repository and hub for

sharing screenshots and personal

experiences and beliefs surrounding

MLMs. There is no corresponding

‘pro’ MLM subreddit.

r/Defectivedetectives

This is a subreddit specifically for

former consultants of LuLaRoe.

General topics of discussion are

experiences with the company,

policies of the

company, and the

future of the company (including

pending litigation).

r/LuLaRoe 6K

This is a subreddit specifically for

LuLaRoe apparel. It used to be more

positively geared toward the brand,

even serving as a means for

customers to find desirable patterns

of LuLaRoe apparel and for positive

discussions of the company. More

recently, the subreddit is more

firmly anti-LuLaRoe in its rhetoric.

The entire history of the subreddit

was included in this analysis.

We employed an ontological search method, generating a list of terms

relevant (but not morally directional) about LuLaRoe and legality,

constructing Boolean search queries to extract streams of threads, posts, and

comments from the relevant subreddits. We intentionally constructed these

queries to include common abbreviations of LuLaRoe (llr). We searched all

three forums for a set of seven terms including, “LuLaRoe AND illegal, llr

AND illegal, LuLaRoe AND legal, llr AND legal, LuLaRoe AND pyramid

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32 FIU Law Review [Vol. 18:001

scheme, llr AND pyramid scheme, and pyramid scheme.” Forums specific to

LuLaRoe included searches only for the terms: legal, illegal, and pyramid

scheme since refining LuLaRoe did not need to be accomplished through the

Boolean search.

This resulted in a total sample of 211 unique threads comprising of

101,848 upvotes, and 10,130 unique comments. Each comment was carefully

and manually examined by the research team in its individual context—and

in its relationship to the thread it was a part of—and was qualitatively coded

into thematic categories, represented here with examples typical of larger

discussions across the three analyzed subreddits.

B. Thematic Analysis

1. Pyramid Schemes Are Illegal

One identifiable subset of subreddit participants were distributors who

sold product for LuLaRoe. Perhaps the most common way these distributors

engaged with pyramid scheme rhetoric was by explaining how LuLaRoe

could not possibly be a pyramid scheme because pyramid schemes are illegal.

This logic is circular yet pervasive. One retailer wrote, for example:

Network Marketing, Multi-Level Marketing, Affiliate

Marketing, all are pretty much the same thing, once you

actually take time to research what it actually means and how

it is structured. They are not pyramid schemes, those are

illegal. If it is not for you, no biggie, but they are the wave

of the future and are actually brilliant business models.

Specifically, this retailer argues that MLMs cannot be pyramid schemes

because pyramid schemes as a category are illegal and MLMs as a category

are not illegal. This tautological approach underscores the particular

regulatory failure in parsing between those two analytic categories. In this

way, the lack of specific legal prohibition of MLMs is actually cast as a

legitimating distinguisher from ‘illegal pyramid schemes’ without addressing

how the two business models are functionally equivalent for the consultant

consumer. That is, we can critique this analysis as surface-level engagement

with categories and their illegality; however, this is the same surface-level

engagement present in the legal materials—from agency opinions to agency

guidance—relied upon for consumer protection and regulation.

Other consultants actually defined what a pyramid scheme is as a

strategy for demonstrating how LuLaRoe could not possibly be a pyramid

scheme without delving into how LuLaRoe passes that test. In other words,

they listed characteristics of pyramid schemes without matching those

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2023] Weaponizing Rhetoric 33

characteristics to LuLaRoe or, more importantly, without doing the work to

distinguish LuLaRoe from a predatory pyramid scheme.

In doing so, distributors defined what a pyramid scheme is as a strategy

for demonstrating how LuLaRoe could not possibly be one. Commenters

often focused on the presence of legitimate retail products, one of the big

sticking points for the FTC, writing things like: “A Pyramid Scheme is a form

of investment (illegal in the US and elsewhere) in which each paying

participants [sic] recruits two further participants, with returns being given to

early participants using money contributed by later ones…AKA NO

PRODUCT SOLD BUT MONEY IS GIVEN.”

This is another example of how current regulation around pyramid

schemes and lack thereof for MLMs can serve to amplify public confusion

and vulnerability about how to identify manipulative companies. In the

regulatory framework as it currently exists, there exists nothing between

“illegal pyramid scheme” and “legitimate (presumptively ethical) business

opportunity.” In fact, as MLMs and their rhetorical tactics demonstrate, there

exists a large, utterly unchecked middle ground of manipulative, exploitative

business practices that do the very things pyramid schemes do but under the

guise of legal legitimacy.

Moreover, the FTC is clear that there can be a physical product and still

be a pyramid scheme, but this nuance is not generally articulated by

commenters in these public forms. This is unsurprising given the

unlikelihood of success on a claim that a company is a pyramid scheme if

they sell a product: a product serves as both a legal and rhetorical shield.

Instead of interrogating the presence of a product with nuance, retailers use

that presence and the continuing legal corporate existence of LuLaRoe as a

justification for how it cannot be a pyramid scheme with the implication that

the company is not manipulative, unethical, or problematic.

Patterns of linguistic obfuscation were not lost on non-distributors and

commenters who do not support MLMs, who specifically commented on this

tautological logic and how it matters for perceptions of LuLaRoe. Non-

distributor commenters frequently discussed the process by which

consultants continue to use this rhetoric as a recruiting tactic in their

downlines and thereby explain one mechanism by which this misperception

might be spread. As one commenter explains: “So, when someone says it’s a

pyramid scheme, they ask their upline if it’s a pyramid scheme, and their

upline says no, because those are illegal. Then they parrot that back to

someone.”

In this example, other people taking in rhetoric from distributors suggest

that there is a broader pattern of logically rendering MLMs as not pyramid

schemes for the simple, unexplored reason of “because they are not.” Here,

the commenter believes that this logic comes from higher up in the

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34 FIU Law Review [Vol. 18:001

organization—suggesting, again, that the agency guidance of surface level

advertisement analysis does not go deep enough and, furthermore, ordinary

people are aware of the need for more depth.

Commenters also opined that the longevity of some MLM companies

(i.e., avoiding penalty under the law as pyramid schemes) also served to

confer an air of legitimacy around their business models. When comparing a

company like LuLaRoe to longer-lived companies like Avon or Mary Kay, a

commenter explains their theory:

They’ve been around long enough that they’re seen as

legitimate, they do have a reputation for pretty decent

products. . . . That doesn’t make them good companies by

any means, if they were they’d launch as just regular

cosmetics lines, but that’s why. An air of legitimacy,

products that would probably sell just as well if they were

regular companies, and good PR teams.

In this way, the sheer survival of a company serves to legitimize it and

its business model. This is deeply related to the idea that MLMs are not

pyramid schemes because pyramid schemes as a class are illegal. Once again,

we see, perhaps, that the very fact that MLMs are largely unregulated or

uncritiqued operates broadly as a suggestion that they do not need to be. That

is, they are legitimate because they have not been proven to not be—

regardless of whether or not this lack of proof is through systemic oversight.

This low bar for legitimacy is reified by a narrow legal classification of

pyramid schemes. We discuss in the next section how this narrow

conceptualization also led to substantial confusion about what actually counts

as a pyramid scheme under the law.

2. Incomprehensibility Surrounding the Legal

Definition of Pyramid Schemes

Non-distributor commenters, who were critical of LuLaRoe, frequently

explained to others on the forum why LuLaRoe is unlikely to be legally

classified a pyramid scheme. As is true in any unmoderated space, the

accuracy of these explanations varied widely. This also matched the general

technical complexity and administrative opacity of the legal concept being

discussed. The following conversation exemplifies a pattern of education and

analysis displayed in the comment forums, including the misconceptions that

come along with legal definitions of MLMs:

[Person 1]: They aren’t different. MLM is simply a pyramid

scheme. Calling it multi-level marketing is just a way to

disguise this. Nobody wants to be a part of a pyramid scheme

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2023] Weaponizing Rhetoric 35

but they might sign up for something called multi-level

marketing.

[Person 2]: I had to look up pyramid schemes on Wikipedia.

I guess the main difference is that they sell a non-worthless

product . . . . Lularoe has an entire clothing line so that is

why they can get away with it legally . . . so I guess the big

question would be, can people make money off of selling

their clothing alone without recruiting anyone underneath

them and be successful?

In this example, and more broadly, disillusioned commenters come to

the forum to air their grievances with LuLaRoe and other MLMs and engage

in legal education surrounding what legally constitutes a pyramid scheme.

The pyramid scheme language is enduring beyond the definitional work not

being done by distributors and it seems to have led forum members to look

into pyramid schemes in general. However, even intentional research in the

topic does not necessarily lead consumers (the group theoretically protected

by law in this space) to accurate conclusions about the legality of MLMs.

Specifically, the same fixation on the presence of retail products that

distributors invoked in their “not a pyramid scheme logic” was

misunderstood by non-supporters. Because the presence of a retail product is

tangible and easy to understand, the presence of such a product makes for a

compelling but insufficient first step in understanding the pyramid scheme as

an analytic framework. However, some non-distributor commenters were

insistent that the existence of a product would be sufficient to defeat a claim.

For example, one commenter wrote: “In their defense, Lularoe is not

technically a pyramid scheme under the law, since there was an actual

product being sold. But yeah they’re c*nts. This is why I suggest people

engage their thinking skills and not give their time and money to people like

this.”

In reality, the FTC is clear that distributors can, in fact, provide a

physical product and still be a pyramid scheme. But this nuance is generally

not articulated by commenters in these public forums, even as they

understand the general stakes of the category—that profits come from

participants, not from sales of goods or services. Instead, consultants use the

presence of product and the continuing legal existence of LuLaRoe as a

justification for how it cannot be a pyramid scheme or cannot be illegal.

Importantly, we argue, this misunderstanding isn’t only used by consultants,

but also by anti-MLM consumers.

Furthermore, we argue that this misunderstanding makes conceptual

sense, given the broad lack of specificity in the law. It is unsurprising that

ordinary people would latch onto any available potential substitutions for

black letter rules. Here, that includes an emphasis on the selling of products

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36 FIU Law Review [Vol. 18:001

over attention to the pyramidal structure. These commenters do suggest a

kind of third space—between legitimate and easily cognizable as a pyramid

scheme—in which MLMs inhabit, outside the bounds of both ethicality and

illegality. Although the commenters miss the nuance of the pyramid scheme

as a legal category, they emphasize the nuance that simple tautological

reasoning from distributor commenters miss: that businesses can operate

without legal sanctions while still not being ethical. Ultimately, this is

another example of how current legislation and case law around pyramid

schemes and MLMs can serve to amplify public confusion and vulnerability

about how to identify manipulative companies by providing a shield of

legality due to the extremely narrow definition of pyramid schemes under the

law. This nuance leads to our next thematic point, that commenters,

particularly non-distributor commenters, are pessimistic about the protective

capacity of the law.

3. Pessimism About the Protective Capacity of

Law

Commenters seemed to undergo a natural progression of learning about

the law to full-blown cynicism as they learned more (accurate or not)

information about the law defining pyramid schemes, eventually leading

them to abandoning hope of regulating MLM companies under pyramid

scheme rules at all. An example of this progression is explained below:

[Person 1]: This company is shady AF, and hopefully

something is able to get them on something which forces

them out of business, but pyramid scheme will not be it.

[Person 2]: It just doesn’t meet the legal definition of a

pyramid scheme. There is actual retailing going on with

Lularoe.

[Person 1]: It would be so amazing if one of these lawsuits

could make ANYTHING happen, but if they keep harping

on this ‘pyramid scheme’ nonsense, nothing will come of it.

After acknowledging and agreeing that LuLaRoe does not meet current

standards for pyramid scheme classification, the original commenter opines

that they are hoping for any type of improvement at all. In fact, they also

suggest that focusing on whether or not LuLaRoe is a pyramid scheme at all

is a smokescreen that will ultimately absolve the company of any legal

responsibility.

It is also important to note that commenters in these forums frequently

engage in advanced legal analysis that leads to their cynical conclusion that

the law in its current form is not designed to protect consumers. One

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2023] Weaponizing Rhetoric 37

commenter, writing specifically about the fate of a class action lawsuit

against LuLaRoe, says:

I am not optimistic. If the class gets out of the arbitration

clause and gets certification, and if LLR loses both suits,

then this will be the end of MLMs as we know it. I mean,

more actual retailing went on in LLR than any other MLM

in history. If an MLM where actual retailing happened is

considered a pyramid scheme (under the law), then the MLM

industry as we know it is gone. If you think an industry that

is constantly greasing palms is going to just get wiped off

the map, then I have a bridge to sell you. MLMs are here to

stay and LLR will not be losing these cases.

112

Here, the commenter identifies the strength of MLMs politically and

legally. They articulate that finding LuLaRoe to be a pyramid scheme would

require a fundamental upheaval in the entire MLM industry that they view as

unlikely or impossible. They also specifically point out that LuLaRoe in

particular has secured its position relative to legal precedent despite their

widely acknowledged predatory and damaging business practices.

In these conversations, the cynicism around LuLaRoe’s potential

vulnerability to the law is deep. Non-distributor commenters can be deeply

skeptical of not just the law’s ability to regulate companies like LuLaRoe,

but this second commenter even goes so far as to say that agencies are

unwilling to regulate companies like LuLaRoe, specifically stating that not

only is LuLaRoe not doomed to fail, but it is too big to fail. This commenter

suggests deep skepticism toward the regulatory potential because they

believe that the deck is stacked, and has been stacked, through manipulative

legislative and legal tactics by LuLaRoe. They suggest that LuLaRoe has

been not only resting on an ineffective and toothless law, but has been

coercively setting up structures whereby those laws are ineffective and

toothless or, at least, that leave LuLaRoe out of their purview. Although this

skepticism about LuLaRoe’s ethics generally transcends the scope of this

paper, it does build upon a fundamental point: people see companies like

LuLaRoe as untouchable, and this untouchability is deeply connected to

general cynicism about the protective capacity of the law.

112

In 2018, twenty-two former consultants sued LuLaRoe for $1 billion in damages (on behalf of

thousands of sellers), but a California judge ordered the case be moved to arbitration due to contracts

signed by consultants mandating legal disputes be resolved by arbitration. Suddath, supra note 77.

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38 FIU Law Review [Vol. 18:001

4. Alternative Strategies and Legal Creativity

Our final thematic category follows a more hopeful path from

commenters. Here, former consultants and consumers suggested alternative

legal strategies for dismantling LuLaRoe, suggesting a kind of legal

creativity in response to existing failures. We build out a new analytical

category for legal analysis: legal creativity. We argue that both experts and

non-experts, when confronted with systemic roadblocks in the advancement

of justice, can and do respond to the law with creativity. In this section, we

examine what that legal creativity looks like when ordinary people are

confronted with a frustratingly opaque system that lacks meaningful access

to remedy for harms caused. Commenters diverge from the well-worn

pyramid scheme and “legitimate MLM business opportunity” scripts that we

have been discussing in this Article and begin to unpack different alternative

solutions.

After acknowledging the difficulty of prevailing on pyramid-scheme-

type claims, commenter’s suggested avenues for legal remedies that they felt

may be more viable:

I’m afraid these lawsuits won’t really go anywhere. As

[redacted] said, there’s an actual product. And in theory,

even the lowest-on-the-downline consultant has gotten

something (no matter how sh*tty and stale the inventory is)

for their money put into LLR. That’s how MLMs “get away

with” hiding their pyramid-iness. The lawsuits would be

better off if they address the unethical changes to policies

and going back on returns.

This commenter specifically identifies the strong retail presence of

LuLaRoe as a strategy for “getting away with” a pyramidal shaped company.

The commenter goes a step beyond this conclusion to suggest that the law

might be better suited to punish the company for policy changes than for the

fundamental way the company operates. Importantly, this commenter

identifies a significant shortcoming in current law surrounding pyramid

schemes: the vagueness with which something becomes a “worth something”

product for your investment. Rather than focusing on the nuance of product

distribution, the presence of an actual product that is “worth something” takes

precedence. As we have argued, even though the law might not work to

address claims framed in that way, commenters address the potential—

describing in fairly explicit detail how they would like the law to work:

addressing the unethical behavior, even as the company moves the goal post.

A second commenter responds directly, pointing out that there are still

failures with the law, even under this new imagined solution. They say:

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2023] Weaponizing Rhetoric 39

The problem is the changes are just unethical not illegal.

According to this suit the problem is that they incentivize by

purchases rather than sales (they changed this in the last

year). They have docs and videos stating the classic LLR

phrase used “you need to buy more to sell more” which gives

those at the top more money while those at the bottom

couldn’t make a profit. This is what makes it an endless

chain which is illegal according to CA law.

That said, I still doubt it will get them any money from

LLR, but according to some the way the RICO suit is filed

. . . allows them to chain this to the top 100 consultants as

well. I’m sure LLR lawyers will protect the company, but

leave those out to dry.

This commenter shares the cynicism toward the pyramid scheme

allegations but is more generally pessimistic about the legal remedies owed

for unethical behavior, differently framed. Even with the presence of

substantial evidence to imply incentivizing mass inventory hoarding by

consultants, there is a lack of belief in the protective capacity of the law. In

fact, the commenter postulates that other consultants are more likely to bear

the brunt of legal sanctions than the actual company due to the adeptness of

LuLaRoe’s legal team. Here, they explicitly target an idea we developed

earlier: that the current law allows for a reframing of responsibility away

from companies and toward individual consumers. This commenter’s

cynicism reflects that position.

Although the commenters continue to return to the idea that the law, as

it exists, is ineffective, they are engaging in a discursive process that begins

to delineate a desire for alternative solutions and starts to generate how those

solutions would work with the problems they identify. In other words,

although this conversation ends in a partially cynical place, the commenters

have concluded that the law as it exists is still ineffective for dealing with the

problems they have identified—they are still attempting to generate solutions

within the law. The commenters follow their own substantial, if imperfect,

knowledge of the law and, in the face of evidence that the law is not

specifically meant to do what they are proposing, are still using the law to

attempt to generate solutions. This, we argue, is a kind of legal creativity

whereby ordinary people are responding to the constraints of imperfect

knowledge and fundamentally flawed legal systems with a generative and

discursive interest in using those very systems for productive and positive

justice work.

Across all thematic groups identified here there is a common thread: the

current iteration of the law protects MLMs as distinct from pyramid schemes,

despite predatory tactics and consultant financial outcomes that are often

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40 FIU Law Review [Vol. 18:001

significantly worse than legally recognized pyramid schemes. We find that

active retailers leverage the weakness of current law to cast their businesses

as more legitimate, while disillusioned former retailers and consumers

anticipate a hopeless cycle where MLMs are not only not held accountable,

but where the law needs to be subverted and finessed to find a way to put

MLMs out of business. This speaks to the ineffectiveness of the current

regime in preventing harms meant to be mitigated by laws prohibiting

pyramid schemes.

VII. R

ECOMMENDATIONS AND CONCLUSIONS

Generally, the United States broadly lacks consumer protection and

worker protection for the types of work that MLM distributors do.

113

broader, federal regulatory plan that addresses these gaps to better protect

individuals, regardless of place of incorporation or residence, would

generally aid in the elimination of predatory business practices. State-specific

plans cannot work due to the national (and global) nature of the corporations

in the twenty-first century. Specifically, in light of our findings here, we

recommend that the FTC promulgate rules with a particular eye toward the

particular harms they intend to prevent. Such rules would specifically need

to address how these businesses are set up as recruitment rather than sales

models and need to put the onus of blame on the company, rather than

independent distributors. For example, we recommend that regulatory

agencies be explicitly critical of bonus structures entirely—not just require

companies have rules that limit the distribution of bonuses—because those

structures heavily incentivize recruitment. This incentivization of

recruitment does not matter as a mere rhetorical or advertising matter; it is

harmful by diluting the market, redirecting focus from sales, and encouraging

stockpiling of inventory.

We also recommend that Congress enact legislation, independently or

through updating existing consumer protection statutes (to expand beyond

action against individual distributors and shift liability to the company) or

RICO, that grants individuals private rights of action against companies with

predatory recruitment and distribution practices.

114

A model statute would

address how profits function within MLMs—prohibiting the operation of

business whereby most distributors pay money to the company rather than

earn—and how distributorship, rather than just the allocation of bonuses, is

based on maintaining an inventory from the company and enforcing liability

113

See generally Mangiaratti, supra note 36.

114

RICO is potentially a viable site for updating regulations around MLMs because the digital

world of MLMs is plausibly related to telecom fraud and therefore, within the scope of RICO. However,

this potential pathway has yet to be pursued in any previous or active cases.

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2023] Weaponizing Rhetoric 41

against companies for the misleading rhetoric and recruitment tactics of their

distributors. This would likely mean prohibiting business models based on

multi-level marketing entirely.

The absence of legal regulation around MLMs does more than leave

consumers and consultants vulnerable; in practice, it confers legal and

institutional legitimacy onto MLMs by virtue of “not being illegal pyramid

schemes.” They are able to differentiate themselves from illegal behavior

without any meaningful difference or effort. In this Article we have

demonstrated how legal regulation is not self-contained to the legal system.

Instead, the rhetoric of legal decisions permeates the discourse around

regulatory topics and changes the way people understand these phenomena.

The case study of LuLaRoe exemplifies how legal discourse matters. We

argue that the court’s failure to acknowledge—and to make LuLaRoe and

similarly situated companies acknowledge—their pyramidal structure seems

like a minor symbolic loss. However, it is extremely important how the

general public understands the law and its protective capacity, and the legal

replicability of the remedy for consultants in other states. In this way, the

decisions of the court become the rhetoric of the public and fundamentally

change the meaning of the law itself in the public’s consciousness. Failing to

protect consumers does more than just fail to protect consumers: it erodes

public trust in the legitimacy of the law as a system.

The current legal discourse around pyramid schemes—and the ways

federal agencies carve out a tiny pocket of businesses to fit this definition—

is, then, able to be exploited by the businesses themselves. By virtue of not

meeting the impossibly narrow definition of a “pyramid scheme,” MLMs and

the small subset of individuals who profit from them are not only able to

evade liability for harms in their downline, they are also able to utilize that

distinction to establish their legitimacy. In other words, MLMs are “not bad”

because they are not (quite) pyramid schemes. This slippery legal framework

ultimately allows the businesses to perpetuate the very harm this language

purports to prevent.