UNIVERSITY OF PENNSYLVANIA
JOURNAL OF LAW AND SOCIAL CHANGE
Volume 25, Number 2 2021
83
REGULATING THE RELUCTANT: POLICIES THAT BENEFIT
VULNERABLE PARTICIPANTS IN MULTI-LEVEL MARKETING
BY ANNIE BLACKMAN
*
Abstract. The vast majority of people who join multi-level marketing companies do not earn
a profit. Those people, called participants or independent distributors, also tend to be women
who seek additional income to support a family or to find community. Moreover, they are
likely to disapprove of attempts by regulators to change the structure of multi-level marketing
companies, or MLMs, despite the fact that most participants will experience financial or social
harm because of their involvement in these companies. So far, efforts by state and federal
regulators have been dampened by this resistance, in addition to unfavorable caselaw and the
muddied distinction between an MLM and an illegal pyramid scheme. Many of the policies
that those regulators do pursue focus on the efficacy of disclosure, which is unlikely to deter
many people who participate in MLMs and is ultimately insufficient to address the harm
flowing from these companies. Better strategies that advocates against multi-level marketing
companies can employ prioritize the needs of participants themselves—even when they
perpetuate harm to others through their participation. By examining the class of people who
join these companies, and the reasons they join, policymakers can craft solutions that hit at
the underlying issues that drive people to MLMs. The best policy measures identify and seek
to solve participant problems in regard to areas such as labor fairness and child care and avoid
ineffective punitive measures against those participants.
* Annie Blackman is a third-year law student at the University of Pennsylvania Law School. I am forever grateful to Professor
Tess Wilkinson-Ryan for her invaluable guidance in writing this comment and for the wealth of knowledge and support she
provides her students. Thank you also to Rachel Zacharias for encouraging me to write this comment in the first place and for
her mentorship; to Tyler for being the perfect partner in providing love, reassurance, and for always being the one to suggest
that we order pizza for dinner; to Agastya, Ben, Jordan, Gracie, and Ross for tolerating years of conversation on the topic; to
Som-Mai for her thoughts, which are always the best. And to Lou, my cat, the top of the pyramid.
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INTRODUCTION...................................................................................................................................85
I. MULTI-LEVEL MARKETING........................................................................................................86
A. What is Multi-level Marketing?.............................................................................................87
B. The Difference Between Multi-Level Marketing and Illegal Pyramid Schemes ..........89
C. The Harm of Multi-level Marketing.....................................................................................92
II. MULTI-LEVEL MARKETING COMPANIES TARGET VULNERABLE
POPULATIONS .........................................................................................................................94
A. Most Participants in MLMs are Women.............................................................................94
B. MLMs Target Relationships Built on Trust........................................................................96
C. The Puzzle of Developing Regulation that Helps Participants ......................................99
III. ENFORCEMENT MECHANISMS............................................................................................100
A. Federal Agency Enforcement.............................................................................................101
1. The Federal Trade Commission Consumer-Directed Approaches .....................102
IV. EFFORTS TO STRENGTHEN DISCLOSURE REQUIREMENTS ARE NOT
SUFFICIENT TO ADDRESS MLM HARM .....................................................................105
A. The FTC’s Franchise and Business Opportunity Rules.................................................106
B. Industry Self-Regulation.......................................................................................................107
C. Why Disclosure is Not Enough .........................................................................................108
D. The Complex Problem Of Developing Solutions That Benefit Participants............111
V. CONCLUSION..................................................................................................................................114
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INTRODUCTION
It is difficult to support a family with one income in the United States. Although average
household income for Americans has increased for the past 50 years, the aggregate income for middle
and lower-income households has stagnated or declined—exacerbating the wealth gap where only a
small share of wealthy Americans experience income growth.
1
In fact, 60 percent of households now
have dual income earners, as opposed to 25 percent in 1960.
2
But many people cannot or find it difficult
to earn income through jobs that impose rigid requirements outside of the home. Those people include
caretakers, individuals who experience community social expectations that preclude them from some
jobs outside of the home, disabled individuals, and those who desire more autonomy in their career. In
those cases, people need opportunities for income that come without the rigid demands that are typical
of many traditional workplaces.
Ostensibly, multi-level marketing fills this gap. Companies that use the multi-level, direct sales
structure enlist many individuals, called independent distributors or participants, who sell products to
personal connections, such as friends, family, and social media connections. The benefit of working for
a multi-level marketing company is that those opportunities theoretically give participants the option
to work from home, set their own hours, and use work to build on existing social networks. During the
COVID-19 pandemic, enrollment in multi-level marketing companies skyrocketed as companies
appealed to individuals who had compelling reasons to work from home because of safety concerns or
job loss.
3
But balancing home life with income demands through multi-level marketing is, unfortunately,
often too good to be true. The vast majority of participants in a multi-level marketing company will not
make a profit. Many participants even lose money through sign up fees and bulk product acquisitions
that they cannot sell to third parties. Despite the statistical implausibility of success, many people in
multi-level marketing companies continue to buy products to hopefully sell even when they do not
actively make a profit. Research suggests that this persistence can be attributed to complex social and
psychological motives: namely that companies target women and vulnerable groups that are more likely
to stay because of the community ties that they have to the business—even when they seemingly derive
no benefit from sales.
This paper will focus on explaining the social intricacies behind multi-level marketing
recruitment, why those factors make it difficult to leave even if a participant has been told that they are
unlikely to profit from their efforts, and how reform efforts could focus on solutions that value the
needs and voices of participants. Many participants currently involved in a multi-level marketing
1
See Juliana Menasce Horowitz, Ruth Igielnik & Rakesh Kochnar, Most Americans Say There Is Too Much Economic Inequality
in the U.S., But Fewer Than Half Call it a Top Priority, PEW RESEARCH CENTER, 5 (Jan. 9, 2020),
https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/
[https://perma.cc/VNH8-9NKG].
2
The Rise in Dual Income Households, PEW RESEARCH CENTER (June 18, 2015), https://www.pewresearch.org/ft_dual-
income-households-1960-2012-2/ [https://perma.cc/AGQ6-PJSN]. See generally Parenting in America, PEW RESEARCH CENTER
(Dec. 17, 2015), https://www.pewresearch.org/social-trends/2015/12/17/1-the-american-family-today/
[https://perma.cc/3AFQ-T4ZM] (contextualizing how these statistics relate to the changing dynamics of American families).
3
See Bridget Read, Hey, Hun! In Women’s Joblessness, Multi-Level Marketers Saw Opportunity, THE CUT (Feb. 3, 2021),
https://www.thecut.com/2021/02/pandemic-unemployment-multi-level-marketing.html [https://perma.cc/9YF6-NN4C]
(explaining that some distributors saw a 400% increase in participation in the summer of 2020).
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company do not see themselves as victims and are unlikely to want regulatory intervention to address
the harm that they experience. The biggest challenge for policymakers and advocates is how to address
social and economic harms flowing from multi-level marketing companies to participants when those
participants do not welcome regulation. Therefore, there are two questions: (1) how can the law address
multilevel marketing and (2) how should regulators accomplish that goal in a way that addresses the
underlying social issues that drive people, mostly women and other vulnerable groups, into multi-level
marketing companies while listening to their stories and understanding the benefits they seek to derive
from this business structure?
Current regulatory advancements and advocacy against multi-level marketing businesses focus
on the first question. In doing so, they stress the importance of disclosure to participants. I argue that,
while disclosure does have benefits and could deter some participants, disclosure would ultimately only
result in further harm for the people it seeks to protect. Rather than deter people from multi-level
marketing companies, disclosures would direct blame to those who join multi-level marketing
companies—not to companies that take advantage of those distributors. Disclosures may serve some
purpose, but regulators who advocate for disclosure requirements neglect to acknowledge the complex
social reasons that drive people to multi-level marketing in the first place. Instead, proposals to decrease
the harms caused by multi-level marketing companies need to pursue enforcement mechanisms that
put the onus of responsibility on companies that facilitate this business structure. Given the need for
work from home opportunities and considering the wide support that participants have for their
companies, any initiative geared toward decreasing the prominence of multi-level marketing should also
seek solutions that incorporate the needs and voices of participants who seek non-traditional work
opportunities and community.
Part I of this comment will provide a brief overview of what multi-level marketing is, the
distinction between how regulatory bodies view multi-level marketing versus illegal pyramid schemes,
and how regardless of that distinction, legitimate multi-level marketing businesses cause significant
harm to participants. Part II examines the populations most likely to work for a multi-level marketing
company and how complex social interactions lead specific groups of people to these businesses. In
Part III explains the current regulatory landscape, focusing on the Federal Trade Commission’s
relatively broad power to bring enforcement actions against companies for deceptive advertising. Part
IV surveys proposals to strengthen disclosure, including calls to expand the Federal Trade
Commission’s existing disclosure rules to multi-level marketing companies, and concludes that forced
disclosure of income potential is an inadequate solution to address the harm at hand—in part because
disclosure does not disable what propels people to join multi-level marketing companies. Finally, Part
V suggests solutions to provide protection for participants in multi-level marketing that address needs
in a more holistic scheme of regulation that includes more benefit to participants than just regulating
the economic nature of multi-level marketing.
I. MULTI-LEVEL MARKETING
“Hey Hun!”
4
Many modern multi-level marketing companies, or MLMs, rely on social media
to distribute their products and to recruit more people into their business.
5
The presence of MLM
4
Hey hun!, THE MLM SCRIPT, https://www.themlmscript.com/ [https://perma.cc/3CTQ-7B5W] (last visited Nov.
13, 2021).
5
Kaitlyn Tiffany, The Internet Is Starting to Turn on MLMs, THE ATLANTIC (Dec. 17, 2020), https://www.the
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activity on social media platforms has become so ubiquitous that online communities sprouted on
platforms such as Facebook, Reddit, and TikTok to address the shared experience of receiving messages
from old acquaintances, usually out of the blue, that ask about the recipient’s interest in additional
income and working from home—always for a multi-level marketing company.
6
The shared vocabulary
common to many MLM cold messages, marketing scripts that have common themes, spawned
community memes to mock participants in these businesses. People who have received these messages
and are opposed to MLMs share sarcastic messages addressing each other as “boss babe,” calling out
“hey girl,” and ribbing on effusive emoji use by participants who talk about being “#blessed” to be
making money from home.
7
This ridicule comes from people who see MLMs as inherently fraudulent.
8
Much of the anger,
however, is directed at participants themselves. Users involved in one anti-MLM Facebook group can
buy merchandise that says “Your MLM Sucks and So Do You.”
9
As the public face of a multi-level
marketing company, it makes sense that participants draw ire for their aggressive or annoying marketing
strategies. But participants in multi-level marketing companies occupy an uncomfortable position as
both potential victims of an unfair, deceptive business structure and as people who perpetuate that
same structure to further recruits. To understand how distributors find themselves in this apparently
unsympathetic position, it is necessary to first understand how the structure of a multi-level marketing
company operates, how it differs from pyramid scheme fraud, and how those companies still cause
harm to participants even when they operate legally.
A. What is Multi-level Marketing?
Multi-level marketing is a form of direct selling in which individual people, referred to as
independent distributors or participants, sell the products of an umbrella company directly to their
personal connections.
10
Sometimes called network marketing
11
or direct selling, individuals involved in
multi-level marketing use their network of friends, family, and acquaintances to distribute products in
a manner that is decentralized from the company that makes those goods. Different MLMs offer a wide
variety of products, ranging from home goods, to insurance, to supplements and weight loss products.
12
atlantic.com/technology/archive/2020/12/tiktok-bans-multilevel-marketing-mlm/617422/ [https://perma.cc/96WE-Q97V].
6
Many of the people in these communities are young women, as well as former participants in multi-level marketing
who go to platforms like Facebook, Reddit, YouTube, and TikTok, to share their experiences. This has come to be known as
the “anti-MLM” movement online. See Kaitlyn Tiffany, How the Pandemic Stoked a Backlash to Multilevel Marketing, THE ATLANTIC
(Jan. 27, 2021), https://www.theatlantic.com/technology/archive/2021/01/anti-mlm-reddit-youtube/617816/ [https://
perma.cc/A2WM-QGTK].
7
Rachael Pavlik, Your Complete Guide to Becoming A MLM #Bossbabe, SCARY MOMMY (June 24, 2020),
https://www.scarymommy.com/mlm-bossbabe-guide/ [https://perma.cc/U7R3-RK8U].
8
Id. (mocking MLM participants for rebutting Federal Trade Commission condemnation of flawed industry practices).
9
Tiffany, supra note 6.
10
Stacie A. Bosley, Sarah Greenman & Samantha Snyder, Voluntary Disclosure and Earnings Expectations in Multi-Level
Marketing, 58 ECON. INQUIRY 1643, 1644 (2020).
11
Multi-Level Marketing Businesses and Pyramid Schemes, FED. TRADE COMM’N (May 2021),
https://www.consumer.ftc.gov/articles/0065-multi-level-marketing-businesses-and-pyramid-schemes [https://perma.cc/
6XZD-9M3W] (last visited Dec. 12, 2021).
12
Adam Epstein, Multi-Level Marketing and Its Brethren: The Legal and Regulatory Environment in the Down Economy, ATL. L.J.,
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But despite this variety, MLMs tend to focus on specific products that appeal to their primary
consumers who tend to be women. Wellness organizations make up 33.8 percent of direct selling
businesses, and home care products and beauty products together make up about the same share.
13
Together, those three categories describe more than two-thirds of the multi-level marketing industry.
According to one study, 1 in 13 people have been involved in direct selling at some point in
their lives.
14
Half of those people engage with more than one direct selling business.
15
Almost all direct
selling organizations are multi-level marketing companies.
16
In 2017, the Direct Selling Association
(DSA), the trade association that represents direct selling companies,
17
reported that over 18 million
people in the United States were involved in direct selling as independent distributors.
18
Most people
who join an MLM do so at least in part for promise of additional income, although some are also
enticed by the promise of discounts on company products.
19
The Direct Selling Association describes
the business model as one that gives individual contractors the entrepreneurial opportunity to market
goods outside of a typical sales environment.
20
The benefit of this structure for the umbrella company is presumably to avoid the costs of
marketing and advertising and the fixed costs of brick-and-mortar stores. In place of overhead costs
that traditional businesses grapple with, thousands of participants who are not technically employees
of the business work in their own communities to bring sales to the company without leaving the
neighborhood. But these savings for the companies do not necessarily translate to more affordable
products or more income for participants. For example, many multi-level marketing companies price
wholesale products to independent distributors at a markup that is comparable to products that already
exist for retail sale in the marketplace.
21
Consequently, companies make the profit they need during the
first transaction with distributors who must then mark up the product further to make money.
22
With
more than one option in the marketplace and because this pushes distributors to sell MLM products at
91, 95-96 (2010).
13
DIRECT SELLING ASS’N, DIRECT SELLING IN THE UNITED STATES: 2017 FACTS AND DATA (2018),
https://www.dsa.org/docs/default-source/research/dsa_2017_factsanddata_2018.pdf [https://perma.cc/MM6H-NQMX].
14
Marguerite DeLiema, Doug Shadel, Amy Nofziger & Karla Pak, AARP STUDY OF MULTILEVEL MARKETING:
PROFILING PARTICIPANTS AND THEIR EXPERIENCES IN DIRECT SALES, AARP, 13 (Aug. 2018), https://
www.aarp.org/content/dam/aarp/aarp_foundation/2018/pdf/AARP%20Foundation%20MLM%20Research%20Study%
20Report%2010.8.18.pdf [https://perma.cc/5FLB-D7L7].
15
Id. at 6.
16
Claudia Groß & Dirk Vriens, The Role of the Distributor Network in the Persistence of Legal and Ethical Problems of Multi-level
Marketing Companies, 156 J. BUS. ETHICS, 333, 333 (2019); Bosley, Greenman & Snyder, supra note 10, at 1644
(“In 2014, 96% of firms, 97% of sales, and 99% of sellers in the U.S. direct selling industry were associated with a multilevel
compensation structure.”).
17
DIRECT SELLING ASS’N, What is Direct Selling?, https://www.dsa.org/about [https://perma.cc/G3X6-SA6Y] (last
visited Oct. 30, 2021).
18
Bosley, Greenman & Snyder, supra note 10, at 1644 (2020); DIRECT SELLING ASS’N, supra note 14.
19
Bosley, Greenman & Snyder, supra note 10, at 1644.
20
See DIRECT SELLING ASS’N, supra note 17.
21
The Dream, Yes, I Would Like to Swim In Cash, at 28:00 (Oct. 1, 2018) (streamed using Spotify).
22
Id. at 26:15-29:00 (playing a recording of lawyer Doug Brooks, an expert in franchise law, who remarked that this
kind of income structure is “the classic definition of a pyramid scheme.”).
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high prices, consumers are often unwilling to buy products from distributors.
23
Because most multi-
level marketing companies benefit from selling products to distributors regardless of whether ultimately
sell those goods to the broader public, they are able to profit without actually offering utility to the
marketplace or delivering goods to consumers who will use them. Experts refer to this as a “closed
system.”
24
In addition, multi-level marketing companies rely on their independent distributors to recruit
more salespeople into the business to expand that workforce.
25
Thus, by design, incoming distributors
are likely to have entered into their business opportunity through the efforts of friends, family, or
acquaintances.
26
Further, compensation in a direct selling arrangement, according to the DSA,
ultimately depends on a distributor’s sales or “the sales of others in [a participant’s] sales
[organization].”
27
What truly separates multi-level marketing from other types of direct selling organizations is
the emphasis on a complex, multi-layered structure between a headquarters company, independent
distributors, and the distributors who have recruited one another and derive part of their sales from
what is known as a “downline.”
28
The term downline refers to any person that one independent
distributor has recruited into the business. Likewise, an “upline” consists of the people who recruited
an individual into the business, the people who recruited their recruiters, and so on.
29
These lines create
an arrangement in which people at the top, who have many downlines, will profit off sales made by the
members of their downline. Those at the bottom, however, profit only on their own sales and must
establish a downline for themselves to receive those commissions.
B. The Difference Between Multi-Level Marketing and Illegal Pyramid Schemes
Millions of people fall victim to pyramid scheme fraud every year.
30
Pyramid scheme fraud
can encompass opportunities that operate like a multi-level marketing company that is deemed
legitimate by regulators, but it also includes Ponzi schemes, chain letters, and other buy-in business
opportunities.
31
An MLM is considered pyramid scheme fraud when a distributor earns profits
23
Id. at 27:00.
24
Id. at 27:30; JON M. TAYLOR, CONSUMER AWARENESS INST., THE 5 RED FLAGS: FIVE CAUSAL AND DEFINING
CHARACTERISTICS OF PRODUCT-BASED PYRAMID SCHEMES, OR RECRUITING MLM’S 9 (2006), https://www.ftc.gov/
system/files/documents/public_comments/2006/07/522418-12585.pdf [https://perma.cc/3CS8-NRQT].
25
Multi-Level Marketing vs Pyramid Schemes, S.D. OFF. OF THE ATT’Y GEN., https://consumer.sd.gov/fastfacts/
marketing.aspx [https://perma.cc/U2LE-A6PQ] (last visited Oct. 30, 2021).
26
Groß & Vriens, supra note 16, at 338.
27
DIRECT SELLING ASS’N, https://www.dsa.org/ [https://perma.cc/44CJ-Z42L] (last visited Oct. 30, 2021).
28
Groß & Vriens, supra note 16, at 333.
29
Id.
30
Stacie A. Bosley, Marc F. Bellemare, Linda Umwali & Joshua York, Decision-Making and Vulnerability in a Pyramid
Scheme Fraud, 80 J. OF BEHAV. AND EXPERIMENTAL ECON. 1 (2019) [hereinafter Bosley, Bellemare, Umwali, & York].
31
For this analysis, to the extent that I focus on pyramid scheme fraud, I will refer to pyramid schemes that disguise
themselves as multi-level marketing companies. However, some people would be surprised to learn that the definition of
“pyramid scheme” includes social media trends like the a “book club” opportunity which promises that if a participant sends one
book to a person on the “upline” of a list, they will receive dozens in return. See Dwight Adams, Parents Beware: The Book Exchange
Where You Send 1 to Get 36 Probably Won’t Work, INDYSTAR (Apr. 17, 2018), https://www.indystar.com/story/news/
2018/04/17/36-book-exchange-letter-parents-beware-pyramid-scheme-facebook/524318002/ [https://perma.cc/RU58-
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predominantly because they recruit more distributors to join the MLM and profit when those distributors
recruit more people.
32
In this model, the ability to make a profit does not hinge on whether any third
party customer purchased an item. Profit could derive solely from recruitment bonuses and
independent distributors purchasing products from the umbrella business. A legitimate multi-level
marketing company, according to the Federal Trade Commission (FTC), is one where compensation is
based on retail sales to actual customers—not based on wholesale purchases, which a distributor can
buy whether or not they end up selling their stock to a customer, or recruitment commissions.
33
In a
pyramid scheme, a participant will only buy in for the opportunity of a return on their initial investment
and only if they are able to recruit into their downline.
34
While a legitimate multi-level marketing
business might offer commissions or other benefits to distributors who recruit more people into the
business, pyramid scheme fraud occurs when the profits derived from the business are predominated
by those recruitment benefits instead of profits from real sales to third persons for actual goods.
35
Despite this apparent distinction, the line between MLMs and illegal pyramid schemes is
ambiguous and heavily debated.
36
For instance, Amway is one of the most nationally recognized,
successful, and long-lasting multi-level marketing companies.
37
Its legitimacy has also been the subject
of intense examination for half of a century. In the 1970s, pyramid schemes were a relatively new legal
issue.
38
The federal enforcement approach was consequentially disjointed and underdeveloped. Against
this backdrop, and with sparse case law regarding pyramid schemes, the Federal Trade Commission
brought suit against Koscot Interplenary,
39
a cosmetics MLM, alleging that company’s requirement of
an endless stream of distributors for any individual to earn an income violated Section 5 of the FTC
Q2DD]. Social media “secret Santa” exchanges are also, sadly, examples of pyramid scheme fraud. See BBB Scam Alert: Social
Media Gift Exchange Is an Illegal Pyramid Scheme, BETTER BUS. BUREAU, (Nov. 1, 2020), https://www.bbb.org/article/
scams/18854-bbb-warning-secret-sister-gift-exchange-is-illegal [https://perma.cc/Y9XZ-T83Z].
31
FED. TRADE COMM’N, supra note 11.
32
Id.
33
Business Guidance Concerning Multi-Level Marketing, FED. TRADE COMM’N (Jan. 2018), https://www.ftc.gov/tips-
advice/business-center/guidance/business-guidance-concerning-multi-level-marketing [https://perma.cc/2XU6-F79Q] (last
visited Nov. 1, 2021).
34
Epstein, supra note 12, at 103.
35
FED. TRADE COMM’N, supra note 11.
36
See, e.g., Sam Thielman, Herbalife Dodges ‘Pyramid Scheme’ Label and Agrees to Pay $200m Fine, THE GUARDIAN (July 15,
2016), https://www.theguardian.com/business/2016/jul/15/herbalife-ftc-fine-200-million-pyramid-scheme-label [https://
perma.cc/YWC7-MA9J]. Following the Federal Trade Commission’s settlement with MLM Herbalife, agency Chair Edith
Ramirez remarked that the company was “not determined to have not been a pyramid,” which, at the time, prompted derision
from comedian John Oliver. Melissa Locker, John Oliver Targets ‘Pyramid Schemes’ on Last Week Tonight, TIME (Nov. 7, 2016),
https://time.com/4560168/john-oliver-pyramid-scheme-last-week-tonight [https://perma.cc/27GK-35VM]. The comedian
acknowledged that the Chair might have refused to call the company a pyramid scheme in the moment because of settlement
negotiations the prioritized consumer redress over pyramid scheme label enforcement.
37
Epstein, supra note 12, at 91-92; see also Analysis: Amway Accused of Fraud; Pays $150 Million; Where’s the FTC and DOJ?,
PYRAMID SCHEME ALERT (Nov. 11, 2010), https://pyramidschemealert.org/analysis-amway-accused-of-fraud-pays-150-
million-wheres-the-ftc-and-doj/ [https://perma.cc/L3XQ-6ANU].
38
Note, Pyramid Schemes: Dare to Be Regulated, 61 GEO. L. J. 1257, 1257 (1973). The Commission had previously filed a
complaint in Holiday Magic and Ger-Ro-Mar, Inc., both within two years of the Koscot decision. Id. at 1266.
39
In re Koscot Interplanetary, Inc., 86 F.T.C. 1106 (1975).
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REGULATING THE RELUCTANT
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Act.
40
In determining how such a company could permissibly operate, an administrative law judge
remarked that the core of what was at issue as far as the Section 5 of the FTC Act was concerned was
the company’s representation that an individual could recover their own investment by recruiting others
to join the venture.
41
To that end, the court articulated a two-prong test to qualify certain opportunities
as entrepreneurial schemes, or illegal pyramid schemes, as they came to be known: “Such schemes are
characterized by the payment by participants of money to the company in return for which they receive
(1) the right to sell a product and (2) the right to receive in return for recruiting other participants into
the program rewards which are unrelated to the sale of the product to ultimate users.”
42
Participant
compensation needed to depend on sales to third parties to be legitimate, not on recruitment.
Only a few years after Koscot, the FTC filed complaint against Amway.
43
This time, however,
an administrative judge ruled that Amway had successfully taken precautions to avoid meeting the
criteria of a pyramid scheme because of the company’s practice of requiring independent distributors
to sell products to at least ten people, a buyback policy, and the fact that 70 percent of its distributors
were within three levels of a direct distributor, or someone who has no one below them in the
downline.
44
The decision muddied the definition of a pyramid scheme and effectively shielded other
MLMs from enforcement.
45
And yet, although Amway escaped the “pyramid scheme” definition
decades ago, in 2010 it agreed to pay $150 million in class action settlement to plaintiffs that accused
the company of operating as an illegal pyramid scheme in violation of state and federal laws.
46
In the
years following the decision, the company and its founder, Richard DeVos, continued to face public
backlash for promoting fraudulent products and for promoting what many people saw as a get-rich-
quick scheme.
47
If the distinction between what is legal and what is fraudulent appears unclear, that is
because it is. Lest it be thought that that a visual examination of a company’s structure could shed light
40
Id. at 1111-12.
41
Id. at 1181.
42
Id. at 1180.
43
In re Amway Corporation, Inc., et al., 93 F.T.C. 618 (1979).
44
Id. at 700. These factors have come to be known at the Amway Safeguards.
45
Matt Stroud, Why the FTC Won’t Take Bill Ackman’s Advice to Prosecute Herbalife (Even Though It Should), FORBES (July
22, 2013), https://www.forbes.com/sites/mattstroud/2013/07/22/ftc-bill-ackman-prosecute-herbalife/?sh=4497f0ad7eb6.
[https://perma.cc/DC23-VNEW].
46
Chris Knape, Amway Agrees to Pay $56 Million, Settle Case Alleging it Operates a ‘Pyramid Scheme’, M LIVE, (Apr. 3, 2019),
https://www.mlive.com/business/west-michigan/2010/11/amway_agrees_to_pay_56_million.html [https://perma.cc/4SFJ-
D2SE]; Analysis: Amway Accused of Fraud; Pays $150 Million; Where’s the FTC and DOJ?, PYRAMID SCHEME ALERT (Nov. 11, 2010),
[https://perma.cc/ME43-K4DG]. By 2019, Amway’s cash payout was significantly lowered to $34 million, though the total
economic value of the settlement was $100 million. The Grand Rapids Press Staff, Lawyers Say Their $20 Million Payment is Fair for
$100 Million Settlement in Amway Pyramid Scheme Lawsuit, M LIVE (updated Apr. 3, 2019), https://www.mlive.com/business/west-
michigan/2010/11/lawyers_say_their_20_million_p.html [https://perma.cc/8M2A-DSSY].
47
Zack Stanton, Rich DeVos: The Salesman Who Helped Launch the Modern Right, POLITICO (Dec. 30, 2018),
https://www.politico.com/magazine/story/2018/12/30/rich-richard-devos-obituary-amway-politics-2018-223306/
[https://perma.cc/5GUP-CJMZ]. Richard DeVos was also criticized for using the money he made in Amway to promote a view
of American conservatism that married church and state. Despite being an opponent of same-sex marriage and characterizing
queer people as seeking “special treatment,” President Ronald Reagan named him to the White House AIDS Commission in
1987. Matt Schudel, Richard DeVos, billionaire co-founder of Amway and GOP financial supporter, dies at 92, WASH. POST (Sept. 6, 2018),
https://www.washingtonpost.com/local/obituaries/richard-devos-billionaire-co-founder-of-amway-and-gop-financial-
supporter-dies-at-92/2018/09/06/3fdefb24-b1e9-11e8-aed9-001309990777_story.html [https://perma.cc/MAS8-UP5C].
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onto the issue, one scholar remarked that a company’s “pyramid shape . . . does not mean it is a pyramid
scheme.”
48
In one study, every MLM observed was recruitment-driven and seemed to satisfy the
requirements of an illegal pyramid scheme,
49
but the Federal Trade Commission has declined requests
to clarify what exactly separates a legitimate multi-level marketing company from a pyramid scheme.
50
This distinction is necessary to understand how current enforcement systems approach, and fail, to
rectify the issue. Ultimately, however, I argue that social and financial harms that flow from multi-level
marketing are not particular to pyramid scheme fraud. Whether or not an MLM is classified as pyramid
scheme fraud, legitimate MLMs employ recruiting techniques that can be intense and misleading.
51
C. The Harm of Multi-level Marketing
The vast majority of people—99.9 percent—who join an MLM will not make a profit.
52
In
fact, distributors involved in multi-level companies are statistically less likely to lose money in schemes
that fit neatly into the definition of illegal pyramid fraud than they are through a legitimate MLM.
53
For
example, in 2013, 87.5 percent of Herbalife distributors earned a median annual income of less than
$650.
54
One study found that 99 percent of Arbonne distributors earned an average annual income of
less than $100.
55
Those who enter an MLM early or have many people in their downline, however,
stand to profit quite a lot. The average income for those within the top .04 percent of earners at
Arbonne was over $330,000.
56
Joining an MLM can be incredibly expensive. Many MLMs require a fee to begin working,
which often pays for a starter kit and a fee for the rights to sell products, although participants are often
unable to pick which products they can actually sell.
57
Considering that many people join MLMs
precisely because they do not have excess income, financing these upstart fees can be difficult.
Approximately a third of participants admitted to financing their business on a credit card.
58
Companies
48
Epstein, supra note 12, at 104.
49
JON M. TAYLOR, THE CASE (FOR AND) AGAINST MULTI-LEVEL MARKETING, CONSUMER AWARENESS INST. 7-2
(2012).
50
Joe Nocera, The Pyramid Scheme Problem, N. Y. TIMES (Sept. 15, 2015) https://www.nytimes.com/
2015/09/15/opinion/joe-nocera-the-pyramid-scheme-problem.html [https://perma.cc/Q5VZ-26B7] (“‘Lots of reporters have
asked that question. Our final response is, We’re not going to answer it.’ . . . I had requested that the [Federal Trade Commission]
explain what distinguished an illegal “pyramid scheme” from a legal multilevel marketing company.”).
51
Epstein, supra note 12, at 97.
52
See Multi-Level Marketing Businesses and Pyramid Schemes, FED. TRADE COMM’N (Oct. 2019),
https://www.consumer.ftc.gov/articles/0065-multi-level-marketing-businesses-and-pyramid-
schemes[https://perma.cc/NV93-WZQJ]; Sergio Pareja, Sales Gone Wild: Will the FTC’s Business Opportunity Rule Put an End to
Pyramid Marketing Schemes?, 39 MCGEORGE L. REV. 83, 96 (2008).
53
TAYLOR, supra note 49 at 7-2.
54
Heidi Liu, The Behavioral Economics of Multilevel Marketing, 14:1 HASTINGS BUS. L.J. 109, 112 (2018).
55
Id. at 123-124.
56
Id.
57
Pareja, supra note 52, at 96.
58
Michelle Singletary, Why Multilevel Marketing Won’t Make You Rich, WASH. POST (Sept. 26, 2018),
https://www.washingtonpost.com/business/2018/09/27/why-that-multilevel-marketing-business-is-probably-not-going-pay-
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93
appeal to low-income people who are looking for additional income and, sometimes, even hoping to
pay off significant existing debt.
59
Some people, like those earning within the top 1 percent in Arbonne,
make a significant amount of money in MLMs. That is not the case for most people who join an MLM
and is particularly difficult for people who come from low-income communities. While companies
advertise their independent distribution as a means to earn money, they ignore the reality that low-
income people are more likely to have networks who are also low-income.
60
Because their potential
buyers, and potential downlines, do not have excess disposable income for products that are often
expensive and non-essential or unpopular goods, those independent distributors are less likely to
succeed.
The business model of an MLM is statistically impossible to sustain long-term, and some
consumer activist groups have long advocated against MLMs because of what they see as an inherently
exploitative structure.
61
Yet some MLMs have remained viable for years. One reason that a company
like Amway could exist for so long, however, is because it specializes in many different products and is
able to essentially create “new pyramids” from new ventures.
62
And in regard to the aspect of the
business found to be “protective” in Amway—the Amway Safeguards—those company policies are
often left unchecked by self-regulation. For example, unused product buy-back programs often take
back products at a heavily discounted price.
63
Some MLM defenders might counter that these concerns are all issues that are intrinsic in any
small business—and many independent distributors refer to themselves as small business owners.
64
It
is true that many small businesses have difficulties making a profit, particularly in the first few years of
operation. However, this is not a good faith comparison. The headquarter operations of multi-level
marketing companies are multi-million-dollar corporations—and although small businesses frequently
fail, they fail at a fraction of the rate of MLM distributors. After 10 years, only a third of small businesses
still survive; in the same time frame, only 5 percent of independent distributors will remain with their
MLM.
65
In comparison to the 1 percent profitability rate of MLMs, the fact that a low 39 percent of
off/ [https://perma.cc/7GNV-R69W].
59
Liu, supra note 54, at 125; Multilevel Marketing: How Selling Your Way Out of Debt Can Sink You Deeper, NASDAQ (Dec.
6, 2017), https://www.nasdaq.com/articles/multilevel-marketing-how-selling-your-way-out-debt-can-sink-you-deeper-2017-12-
06.
60
Liu, supra note 54, at 130.
61
Pareja, supra note 52, at 91. If everyone in a multi-level venture were able to recruit just 5 people, they would exceed
the population of the Earth in 13 levels. Even then, the vast majority of people would be at the bottom with no one in their
downline. Herb Greenberg, Multi-Level Marketing Critic: Beware ‘Main Street Bubble’, CNBC (Jan. 9, 2013), https://
www.cnbc.com/2013/01/09/multilevel-marketing-critic-beware-main-street-bubble.html [https://perma.cc/G246-NURC].
See, e.g., Tina.org Pushes for New Enforcement Against MLM Industry, TRUTH IN ADVERT. (June 30, 2021), https://www.
truthinadvertising.org/tina-pushes-new-enforcement-tactic-against-mlm-industry/ [https://perma.cc/N8C3-V2CN].
62
Taylor, supra note 24, at 6.
63
See, e.g., Ginger D. Rough, LuLaRoe Abruptly Changes Return Policy; Consultants Say They Are Out Thousands, USA TODAY
(Sept. 14, 2017), https://www.usatoday.com/story/life/allthemoms/news/2017/09/14/lularoe-return-policy-changes-
outrage/34915297/ [https://perma.cc/6W2Q-AQMM].
64
See Casey Bond, Joining An MLM Does Not Make You A ‘Small Business Owner’, HUFFPOST (Jan. 8, 2021), https://www.
huffpost.com/entry/mlm-consultant-not-small-business-owner_l_5ff749c2c5b6fc79f46382d8 [https://perma.cc/HXF2-
JVLQ].
65
Katherine Gustafson, What Percentage of Businesses Fail and How to Improve Your Chances of Success, LENDING TREE (Aug.
7, 2020), https://www.lendingtree.com/business/small/failure-rate/ [https://perma.cc/NL2V-EHSU]; TAYLOR, supra note 49,
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94
small businesses make a profit seems extraordinary.
66
Involvement in a multi-level marketing business is not just a risky business decision because
there is virtual certainty of failure. The preceding section demonstrates the ways in which distributors
are unlikely to make a profit. Why, then, do people join MLMs?
II. MULTI-LEVEL MARKETING COMPANIES TARGET VULNERABLE POPULATIONS
Naked statistics regarding participants who lose money in multi-level marketing businesses
are empty without an understanding about the people these companies target and those who participate.
Many people could stand to benefit from the flexibility that direct selling offers. People with children
and those who are unable to work outside of their homes, for example, might be attracted to promises
from a company that they can make the same amount of money working a remote opportunity with
no specific scheduling demands. The issue is that, recognizing this need, MLMs often target vulnerable
populations to a model that is incompatible with actual financial success.
A. Most Participants in MLMs are Women
67
Women form the majority of the participants in and the consumers of multi-level marketing
products those companies market to them on the basis of their gender.
68
More than two-thirds of
products made by companies that use multi-level marketing are associated with being traditionally
feminine.
69
Multi-level marketing companies like Tupperware and Mary Kay were originally introduced
as opportunities for housewives to make money from their own homes and to deliver home goods and
cosmetics to women in rural areas who did not have easy access to big department stories.
70
Avon
attracted women to conferences using slogans such as “Now is the time! Avon, the company for
Women!”
71
Multi-level marketing distributors are still predominantly women. Today, 75 percent of people
involved in multi-level marketing companies in the United States are women.
72
Worldwide, 85 percent
at 6–3.
66
TAYLOR, supra note 49, at 7–2.
67
I acknowledge that people who participate in multi-level marketing may not fall within the gender binary. Throughout
this article I will use “women” or “men” to discuss the implication of gendered experiences. This should be understood to discuss
traditional notions of gender roles and how companies use them to attract a “female” workforce, but it not an endorsement of
non-inclusive language. When talking about pregnancy and child rearing, I use gender-neutral language because many people
who become pregnant and/or give birth are not women.
68
Id. at 19.
69
DIRECT SELLING ASS’N, supra note 13.
70
Laura Richards, How MLMs — Multilevel Marketing Schemes — Are Hurting Female Friendships, CHI. TRIB. (Jan. 22,
2019), https://www.chicagotribune.com/business/ct-biz-mlm-female-friendship-costs-20190122-story.html [https://perma.cc
/YK64-5MBB].
71
Tiffany Lamoreaux, Home is Where the Work is: Women, Direct Sales, and Technologies of Gender 2 (May 2013)
(Ph.D. dissertation, Arizona State University), https://hdl.handle.net/2286/R.I.17914 [https://perma.cc/6VA2-APFC].
72
DIRECT SELLING ASS’N, DIRECT SELLING IN THE UNITED STATES: 2020 FACTS AND DATA (2021),
https://www.dsa.org/docs/default-source/research/dsa-industry-overview-fact-sheetd601b69c41746fcd88eaff000002c0f4.pdf
[https://perma.cc/F7XE-B4V9].
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of distributors are women.
73
The majority of these women in the United States are married, and about
half of them have children at home.
74
Understanding their workforce, MLMs appeal to women in two
ways: (1) Many MLM products are understood to be “feminine,” such as LulaRoe clothing or Lipsense
makeup and (2) direct selling companies understand the anxiety many women have about balancing
work with their roles as homemakers and mothers.
75
Whether women have historically had access to
participate in the formal economy in, women have always contributed in some way.
76
But women who
work outside of the home historically have faced condemnation from people who believe that those
working contributions only distract women from their child-rearing duties.
77
Seizing on that backlash,
the early stages of multi-level marketing began in the late 1880s when the traditionally male field of
door-to-door sales began to decline because of the rise of mass advertising. Facing that challenge, one
businessman turned to white women to instead peddle traditionally traveled goods within their own
communities.
78
By abandoning the traveling model, his business could morph into a venture that instead
took advantage of pre-existing relationships to make sales. In order to appeal to the white women he
needed for his salesforce, he described his sales model to potential workers as a social act and stressed
the importance of communication over sales.
79
Sales agents focused on the benefits of the program to
simultaneously work and take care of a family at home to appeal to their demographic.
80
From the
beginning, however, some companies refused to allow Black women to become sales representatives
and explained the decision as one of “respectability.”
81
Through the Great Depression in the 1930s, and for the continued decline of family income
in the century since,
82
the need for women to work only grew. Notwithstanding the fact that women
are still underpaid in the workforce,
83
more women are able to comfortably work outside of the home
now than they were in the late 1800s. Yet, bias against women working outside of the home and the
pressure to put family life above all else persists in some places
84
and the burden of caretaking falls
73
Lamoreaux, supra note 71, at 44.
74
Id. at 102.
75
Id. at 44.
76
Id. at 46-47. Broad assertions about how women have been included in the workforce beg further explanation. While
white women have been historically denied the opportunity to work outside of the home, Black women, Indigenous women, and
women of color have been forced to work outside of the home. “Even after Emancipation, political and economic conditions
forced many Black mothers to earn a living outside the home. At the turn of the century nearly all Black women worked . . . in
white people’s homes.” While white women’s domestic role is tied to their motherhood, Black women were denied experiences
of their own motherhood as they worked in the homes of white people. DOROTHY ROBERTS, KILLING THE BLACK BODY 15
(1997).
77
Lamoreaux, supra note 71, at 48.
78
Id. at 49.
79
Id. at 52.
80
Id. at 54.
81
Id. at 57.
82
Horowitz et al., supra note 1.
83
Robin Bleiweis, Quick Facts About the Gender Wage Gap, CENTER FOR AMERICAN PROGRESS (Mar. 24, 2020),
https://www.americanprogress.org/issues/women/reports/2020/03/24/482141/quick-facts-gender-wage-gap/
[https://perma.cc/3X2W-U7T5]. White women make 79 cents for every dollar that a white man makes; Black, Hispanic and
Latino, and Indigenous women make comparatively less. Id.
84
Lesley Evans Ogden, Working Mothers Face A ‘Wall’ of Bias—But There Are Ways to Push Back, SCIENCE MAG. (Apr.
Published by Penn Carey Law: Legal Scholarship Repository, 2022
25 U. PA. J.L. & SOC. CHANGE 2 (2021)
96
disproportionately on women.
85
In one study, women in direct sales indicated that the most important
catalyst for them entering into the business was to have the freedom to be stay-at-home mothers in an
industry that seems to have it all—friendship, fun, and much needed additional income in a place where
they can still be accessible to their families.
86
One of the biggest draws of MLMs to participants is that they come with an aspect of
community, both online through social media and in person during conferences,
87
meetups, and
independent distributor hosted parties. Part of the reason that MLMs seize on women is because of the
gendered expectation that they are more social beings—and women who participate in MLMs are often
already active members of their community. The MLM experience only adds to this emphasis on social
cohesion. Companies facilitate friendships between distributors in a line, including sometimes daily
phone calls between a distributor and their upline.
88
Through marketing, MLMs seem like completely
social endeavors with incidental sales aspects rather than business ventures to earn profit, and
companies are able to disguise the real labor women are doing for them as an extension of their gender
stereotyped roles as relationship-oriented caretakers.
89
Framing business as a way to “help others”
through “parties” and an insidious focus on positive thinking is a gender coded marketing strategy to
get more women on board.
B. MLMs Target Relationships Built on Trust
Independent distributors with It Works!
90
were explicitly told to “add as many moms” as they
could and to “go into mom groups and look for anyone at trying to look for friends or who had financial
struggles and go after them, like a friend offering them this thing they needed.”
91
It Works! is a company
that sells weight loss wraps and supplements, presumably targeting anxieties about pregnancy weight
gain. It also advertises products that “diminish cellulite and stretch marks,” directed at post-pregnancy
10, 2019), https://www.sciencemag.org/careers/2019/04/working-mothers-face-wall-bias-there-are-ways-push-back [https://
perma.cc/C6BU-H6KN].
85
Zoya Wazir, Gender Gap in Child Care Increases Curing Pandemic, U.S. NEWS (June 28, 2021),
https://www.usnews.com/news/best-countries/articles/2021-06-28/women-men-provided-unequal-child-care-during-
pandemic (“Pre-pandemic, women globally provided an average of 4.5 trillion hours of unpaid child care per year, while men
provided 1.4 trillion. After the pandemic hit, the study reports that the total number of hours in unpaid child care went up by
12%.”).
86
Lamoreaux, supra note 71, at 102.
87
Darlena Cunha, Beware of Selling Yoga Pants on Facebook, THE ATLANTIC (Apr. 18, 2018),
https://www.theatlantic.com/business/archive/2018/04/multilevel-marketing-yoga-pants-facebook/558296/
[https://perma.cc/US5Z-QV2A]; see also Singletary, supra note 58. Although conferences may seem like a business expense
covered by the umbrella company, participants often pay for them out of pocket.
88
Groß & Vriens, supra note 16, at 339.
89
Lamoreaux, supra note 71, at 129.
90
The FTC recently sent a warning letter to ItWorks! for misleading earnings claims. Federal Trade Commission,
Warning Regarding Earnings Claims Related to Coronavirus Disease 2019 (COVID-19) (Apr. 24, 2020),
https://www.ftc.gov/system/files/warning-letters/covid-19-letter_to_it_works_marketing_inc.pdf [https://perma.cc/S9D6-
YEQA].
91
Sara Silverstein, Jennifer Lee & Amelia Kosciulek, People Who Sell for Multilevel Marketing Companies Look Wildly Successful
on Facebook, but the Reality Is Much More Complicated, BUS. INSIDER (Aug. 6, 2019), https://www.businessinsider.com/mlms-use-
social-media-facebook-portray-financial-success-2019-7 [https://perma.cc/S9D6-YEQA].
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97
sales.
92
The targeting of pregnant people by It Works! is just one example of how independent
distributors in MLMs use their private relationships to drum up business and exploit vulnerable
people.
93
Private relationships usually involve a significant amount trust and when a multi-level business
has an incentive structure that relies on using these relationships to recruit new participants, it causes
harm to valuable social networks.
94
Potential consumers in an MLM are most likely to receive
information about the business from a family member or friend that they trust, and recruitment includes
elements of obligation, loyalty, and complex social dynamics that are not necessarily present in other
forms of sales conduct.
95
It is true that the potential for abuse and misusing relationships for a
salesperson’s own gain is inherent in any type of selling.
96
Trusted family and friends are usually the
first people to feel obligated to support a loved one’s new business. Few other businesses, however, are
based on using these private relationships in the way that MLMs are, and multi-level marketing is more
likely to take place in situations of trust than other types of business.
97
The potential for damage is especially high in certain communities where there is a heightened
reliance on trust. This includes religious groups and immigrant groups. An independent distributor
might rely on community in their place of worship to sell products, and places of worship occupy a
sensitive place in terms of fostering community trust.
98
In many religious communities, there is a sense
of reliance on one another and belonging that could lead religious people to be more suggestable to
abuses of trust and more likely to join ventures based on the urging of people within their community
of faith. In fact, research shows that religiosity might correspond to fraud sensitivity and to involvement
in multi-level marketing.
99
Many MLMs adopt religious symbolism and create a narrative that is linked
to boundless faith, using words like “blessing” to describe success.
100
There is typically a higher reliance on trust in certain marginalized communities that are
affected by multi-level marketing and pyramid scheme fraud.
101
In the United States, Hispanic and
Latino people are overrepresented in the multi-level marketing industry.
102
People of Hispanic origin
make up 20 percent of all independent distributors.
103
Some multi-level marketing companies, like
92
Product Info: Stretch Mark Moisturizing Body Cream, IT WORKS!, https://static.myitworks.com/productsheets/212/212-
productinfo-en.pdf [https://perma.cc/2596-VZ89].
93
Groß & Vriens, supra note 16, at 339.
94
Bosley, Bellemare, Umwali, & York, supra note 30, at 2 (explaining that trust plays a role in pyramid scheme fraud
and that affinity-based fraud is able proliferate because it capitalizes on high amounts of in-group trust that exist between
communities).
95
Bosley, Greenman, & Snyder, supra note 10, at 1659.
96
Groß & Vriens, supra note 16, at 339.
97
Id.
98
Bosley, Bellemare, Umwali, & York, supra note 30, at 2-4.
99
Id. at 3.
100
Liu, supra note 54, at 128.
101
Bosley, Bellemare, Umwali, & York, supra note 30, at 2.
102
Bosley, Greenman, & Snyder, supra note 10, at 1648.
103
Abby Vesoulis & Eliana Docketerman, Pandemic Schemes: How Multilevel Marketing Distributors Are Using the Internet—
and the Coronavirus—to Grow Their Businesses, TIME (July 9, 2020), https://time.com/5864712/multilevel-marketing-schemes-
coronavirus/ [https://perma.cc/N3JM-4PUP].
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Herbalife, have faced criticism for targeting economically vulnerable communities, and Hispanic or
Latino people in general.
104
The Federal Trade Commission recognized that pyramid scheme fraud
infiltrates close-knit communities like African American churches and Latino immigrant
communities.
105
In 2019, despite reaching an all-time low, poverty rates still stood at 18.8 and 15.7
percent for Black and Hispanic communities respectively.
106
Comparatively, the poverty rate for white
people was 7.3 percent and 10.5 for the entire United States on average.
107
Given rates of poverty and
increasing unemployment, advocates worry that illegal pyramid schemes will prey on marginalized
communities where individuals seek alternative ways to make money.
108
The harm that women
experience because of multi-level marketing is only compounded when those women are from low-
income communities, and when they are targeted because of their religious affiliation, their identity as
parents, their immigration status, and/or their race. Participants of MLMs should be understood in
regard to their intersecting identities because they show how multi-level marketing companies target
disadvantaged groups.
109
The fact that people are recruited by their trusted connections means it might be more difficult
for participants to leave. Participants might fear letting the person who recruited them down. They
might also come to feel that failure would mean breaking the trust of the family-like structure
110
they
have built in their own uplines. Those issues only become more embedded as time goes on. When
someone joins an MLM, the company can “colonize every aspect of their lives” by becoming deeply
engrained into everything the participant does.
111
Because the factors of decision-making in joining an
MLM are so multifaceted, they cannot be easily measured by more abstract cost-benefit analyses that
consider only the economic reward of joining the business opportunity. When someone signs up for
an MLM, engage in a social exchange with their pre-existing community, they create new community,
and they recruit more people into that new community. For the last reason, the victims of this
duplicitous business relationship become, themselves, perpetrators of harm. That dual nature makes it
difficult to tell where enforcement is needed and how it can benefit participants. How can regulations
avoid depriving participants of the positive community they develop while considering how that
community can wreak economic and social havoc?
104
Id.
105
FED. TRADE COMM’N, COMBATING FRAUD IN AFRICAN AMERICAN & LATINO COMMUNITIES: THE FTC’S
COMPREHENSIVE STRATEGIC PLAN (2016).
106
John Creamer, Inequalities Persist Despite Decline in Poverty for All Major Race and Hispanic Origin Groups, U.S CENSUS
BUREAU (Sept. 15, 2020), https://www.census.gov/library/stories/2020/09/poverty-rates-for-blacks-and-hispanics-reached-
historic-lows-in-2019.html [https://perma.cc/67SG-AUKS].
107
Id.
108
See Steph Amaya Mora, The Pandemic Leaves More Latinos Vulnerable To Illegal Pyramid Schemes, PULSO (Oct. 28, 2020),
https://projectpulso.org/2020/10/28/the-pandemic-leaves-more-latinos-vulnerable-to-illegal-pyramid-schemes/
[https://perma.cc/UM6F-TGL2]; Michelle Singletary, Structural Racism Helps Schemers Attract Blacks to Fake ‘Sou-Sou’ Scam, WASH.
POST (Aug. 14, 2020), https://www.washingtonpost.com/business/2020/08/14/fake-sou-sou-lure-blacks/
[https://perma.cc/J6RD-FWJH] (explaining that structural racism and wealth inequality creates the potential for an illegal
pyramid scheme to victimize some Black people); see also Vesoulis & Dockterman, supra note 103.
109
See Lamoreaux, supra note 71, at 21 for a further analysis of intersectionality as it relates to multi-level marketing
(citing texts by Kimberlé Crenshaw, Patricia Hill Collins, Glenn, Venus Green).
110
See id. at 6.
111
Groß & Vriens, supra note 16, at 339.
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C. The Puzzle of Developing Regulation that Helps Participants
Independent distributors are charged with the task of recruiting more distributors into their
downline—even if they themselves are not making a profit. This creates a potentially unsympathetic
victim. Those participants are almost certain to lose money, but they still buy into and recruit their
connections into a business where that is statistically unlikely to succeed. This perpetuates harm to
other members of their community. In addition to the nearly inevitable financial fallout, there is
significant emotional harm that occurs when, for example, one mother connects with another mother
by feigning an emotional connection only for the contact to realize that the basis for their
communication was a sale.
112
For MLMs that sell products geared toward weight loss, distributors
sometimes message potential consumers with hurtful insinuations about their bodies.
113
Some
distributors make false health claims about products that can be attractive to consumers in difficult
health situations. This can raise hope for those consumers who will ultimately be let down by the false
promise of a cure.
114
Distributors sometimes drive their families deep into debt through one or multiple
MLMs,
115
use extreme measures to shame their downlines into producing more sales for their own
commission,
116
and promote their business in socially inappropriate situations where it is difficult for
the potential buyer to refuse.
117
Given this nature of distributors, it can be hard to sympathize with
them—and perhaps that is why anti-MLM communities exist to mock participants. It also, however,
fits into a broader societal tendency to blame people—and women in particular—for being taken
advantage of. Despite the harm that distributors facilitate, those harms still ultimately originate with the
company itself. People who join MLMs might hold beliefs about their prospects that seem absurd to
someone who knows their actual likelihood of success. But they may hold those beliefs because the
multi-level marketing model encourages a high degree of positivity and optimism. Companies do not
tend to give distributors specific barometers of success, but instead repeatedly tell them that anything
is possible and that if they are not able to achieve their wildest dreams it is only due to their own
laziness.
118
When distributors perpetuate this model to their trusted connections, it is probably because
they believe in it themselves.
Society can be unfavorable to people who fall for fraud or are in some way “duped.”
119
Surely,
112
Richards, supra note 70.
113
See, e.g., u/SweetHoneyApples, REDDIT (May 31, 2018, 11:02 AM), https://www.reddit.com/r/antiMLM/
comments/8njll3/i_need_to_lose_weight_it_seems/ [https://perma.cc/43VC-CACP] (showing a message exchange where an
MLM distributor suggested that a contact needed to lose 5-10 pounds).
114
See, Kayleen Schaefer, Inside the Creepy World of Women Selling You Supplements on Facebook, WOMEN’S HEALTH (Sept.
20, 2018), https://www.womenshealthmag.com/life/a22749385/direct-sales-social-media-friendship/ [https://perma.cc/
JEX8-PT5V].
115
See, e.g., Lamoreaux, supra note 71, at 126.
116
See Read, supra note 3 (giving the example of one former distributor whose upline would send her messages like
“you need to press harder,” “Look at me, I’m a stay-at home mom,” and “I’m about to give birth,” to shame her for not meeting
sales goals.).
117
Groß & Vriens, supra note 16, at 338.
118
Liu, supra note 54, at 125.
119
Being duped refers to a situation where one “believes that injustice was the result of deliberate, intentional acts” by
a third party. See Kathleen D. Vohs et. al, Feeling Duped: Emotional, Motivational, and Cognitive Aspects of Being Exploited by Others, REV.
OF GEN. PSYCH. 127, 128 (2007) (In the MLM context, participants can be said to be duped either by companies or upline
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that effect is only worsened for women who have not only been duped, but who have continued to buy
into the deceit and further induced others to join them as well. But refusing to understand how gender,
race, and social hierarchy can influence decision-making in multi-level marketing arrangements ignores
a reality that is vital for regulation and harm reduction.
120
This dual nature of participants does not
make them less worthy of protection. Understanding it could provide for a more informed, empathetic
approach to enforcement that includes consideration for the benefit that participants. When regulatory
intervention occurs, it should work not just for the most vulnerable victims at the bottom of a pyramid
scheme, but also for those whose position is more morally ambiguous and for whom regulators might
want to assign blame. That intervention must also incorporate the perspective of women who joined
MLMs so that it can develop solutions that address those needs instead of solutions that solely work
by removing multi-level marketing as an option. This might mean solutions that examine and address
the underlying social issues that bring vulnerable populations to multi-level marketing in the first place.
III. ENFORCEMENT MECHANISMS
Before I address the puzzles of a future regulatory scheme that addresses participant harm
while accounting for their experiences, I will overview the current enforcement structure against MLMs.
Federal and state governments have different mechanisms to regulate and police the activities of multi-
level marketing companies. These include regulations that provide ex ante standards for companies to
abide by as direct selling organizations as well as ex post enforcement actions brought by federal and
state agencies against MLMs that have conducted activity as illegal pyramid schemes. There are
common problems in the industry that frequently lead to regulatory action: (1) when an MLM operates
as a pyramid scheme, (2) when income opportunities are exaggerated or not disclosed, (3) customers
are harmed by those claims, (4) distributors misuse their private connections to sell products and recruit
into the business, and (5) the structure of MLMs restricts their members’ ability to think clearly about
the quality of their business.
121
State actions may take many forms and will necessarily vary depending on the policy goals and
needs of each individual state.
122
Though states can employ various mechanisms like anti-pyramid
scheme laws, broad securities laws that encompass pyramid schemes, and business opportunity laws
that apply to MLMs, state enforcement is not universally useful against MLMs because those companies
are able to disseminate their business practices across state lines and become unreachable to states that
have the strictest laws.
123
Although some states are active against multi-level marketing, some states
have codified protections for the industry.
124
But given the broad application of the commerce clause,
most multi-level marketing businesses should be able to be subject to federal laws because they almost
participants that induce them into the business).
120
Cf. Debora L. Threedy, Dancing Around Gender: Lessons from Arthur Murray on Gender and Contracts, WAKE FOREST L.
REV. 749 (2010).
121
Groß & Vriens, supra note 16, at 334.
122
Pareja, supra note 52, at 104-105.
123
Id.
124
Haley Fuchs, Sinema’s Raking in Cash From MLMs. They Want to Kill Her Party’s Labor Bill, POLITICO (Nov. 5, 2021),
https://www.politico.com/news/2021/11/05/kyrsten-sinema-multi-level-marketing-labor-519661 [https://perma.cc/U74J-
JDLQ].
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always affect interstate commerce.
125
The nature of multi-level marketing spurs interstate commercial
interactions. Because compensation plans in MLMs require recruitment, distributors are almost
inevitably pushed to look to connections in other states for recruitment when their own communities
become saturated with participants.
126
Participants also rely on social media, where their messages are
likely to reach consumers in other states.
127
For that reason, I focus on federal enforcement.
A. Federal Agency Enforcement
Multiple federal agencies take some kind of action against multi-level marketing and pyramid
scheme companies. The U.S. Department of Justice and Food and Drug Administration (FDA)
occasionally bring actions against MLMs. The Justice Department focuses enforcement on mail-fraud
businesses and uses a lottery approach that weighs how much a company receives from a participant
in proportion to how much that participant may benefit.
128
FDA can take enforcement actions against
multi-level marketing companies that advertise impermissible health claims under the FDA Act—for
example, claiming that essential oils could cure cancer or the Ebola virus.
129
However, MLMs are
sometimes able to structure their advertisement claims and instruct independent distributors in ways
that do not technically violate the Act, but still make health claims that should be regulated under the
spirit of the law.
130
The Securities Enforcement Commission (SEC) has the authority to bring enforcement
actions against a company when security is involved—meaning that the MLM needs to have violated
the Securities Act, Securities Exchange Act, or associated regulations
131
when a participant invests
money into the company expecting for profit to derive solely from the effects of a third party (their
downline).
132
The SEC is only able to reach pyramid scheme fraud and not legal but harmful effects of
legitimate multi-level marketing businesses.
133
Even under more stringent standards that classify
securities fraud in a way that would reach legitimate MLMs, companies often find ways to work around
requirements.
134
125
TAYLOR, supra note 49, at 11-6 (explaining that independent distributors often must recruit people they know in
other states because their own cities and states are heavily saturated with distributors).
126
Id. at 10-19.
127
See Silverstein et. al, supra note 91.
128
Liu, supra note 54, at 115-16.
129
Abby Ohlheiser, FDA Warns Three Companies Against Marketing Their Products as Ebola Treatments or Cures, WASH. POST
(Sept. 24, 2014), https://www.washingtonpost.com/news/to-your-health/wp/2014/09/24/fda-warns-three-companies-
against-marketing-their-products-as-ebola-treatments-or-cures/ [https://perma.cc/P5RT-6Y4R].
130
See, Schaefer, supra note 114 (reporting that a Plexus participant was told to frame her pitch in a way that focused
on symptoms, not conditions, so as to not attract the attention of FDA).
131
Liu, supra note 54, at 116.
132
Id. (citing SEC v. W.J. Howey, 328 U.S. 293, 298-299 (1946)).
133
After the standard set forth in Howey, several lower courts and, ultimately, the Fifth and Ninth Circuits reached
decisions that made this prong of the test less restrictive in some pyramid scheme fraud cases by finding that the term “solely”
should not be taken literally. For a review of various approaches courts have taken to determine whether pyramid scheme fraud
constitutes a security, see Corey Matthews, Using a Hybrid Securities Test to Tackle to Problem of Pyramid Fraud, 88 FORDHAM L. REV.
2045, 2067–76 (2020).
134
The Ninth Circuit’s test in Webster v. Omninutrition International, Inc. classifies a pyramid scheme for the purpose of
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1. The Federal Trade Commission Consumer-Directed Approaches
The goal of the Federal Trade Commission is to protect consumer welfare and promote
competition in interstate commerce.
135
Of the federal agencies that are empowered to regulate the
multi-level marketing industry in some way, the FTC’s mission most aligns with a solution that benefits
the participants of an MLM. The purpose of consumer protection in the FTC from its inception was
to protect consumers from deceptive forces in the marketplace.
136
Its ability to craft rules and bring
enforcement actions against multi-level marketing companies is more broad than other agencies. Unlike
FDA, it does not need to focus only on products that make health claims, and unlike the SEC, available
remedies do not depend upon the finding of a security. The FTC brings action against companies
because of their unfair trade practices and deception, stemming from their authority under Section 5
of the FTC Act and related regulations.
137
FTC remedies can presumably address the core of what
makes MLMs harmful: that they can deceive consumers into entering a business structure which is
unlikely to meet their needs and benefit them.
Yet, the agency’s relationship with and regulation of the direct selling industry is one fraught
with tension. After the Amway decision in 1979, discussed supra in Part I, the Federal Trade Commission
was limited in the type of enforcement action it could take against multi-level marketing companies.
Since then, FTC enforcement mechanisms have been relatively ineffective in addressing multi-level
marketing schemes.
138
For one, claims by independent distributors are impossible for the agency to
completely monitor. An attorney for the Federal Trade Commission explained that social media makes
it difficult for the FTC to determine when distributors are making deceptive claims because they often
communicate with others through private messaging, or over private accounts.
139
Further, she explains
that the Commission relies on case-by-case complaints which may not be representative of all consumer
harm.
140
In addition, federal agencies face the challenge of regulating an industry that has significant
financial resources. This can be daunting for agencies with limited budgets, and the FTC is charged
with investigating and regulating many different industries.
141
The DSA reports that direct selling
securities fraud in such a way that could potentially apply to many MLMs. But MLMs are often able to carefully construe their
incentive structure to meet those requirements by, for example, saying that commissions for new recruits derive from the
acquisition of new customers by those recruits but not for the recruits themselves—despite the fact that that money comes from
new recruit sign up fees and not sales commissions. Pareja, supra note 52, at 101-102.
135
About the FTC, FED. TRADE COMM’N, www.ftc.gov/about-ftc [https://perma.cc/T82F-HCJY].
136
Pareja, supra note 52, at 89.
137
Id. at 94-95.
138
Pareja, supra note 52, at 89.
139
Vesoulis & Dockterman, supra note 103.
140
Dylan Miettinen, “LuLaRich” Docuseries Highlights Struggles of MLM Regulation, Oversight, MARKETPLACE (Oct. 7, 2021),
https://www.marketplace.org/2021/10/07/lularich-docuseries-highlights-struggles-of-mlm-regulation-oversight/ [https://
perma.cc/4HUM-USAB].
141
Jessica L. Rich, former Director of the FTC’s Bureau of Consumer Protection, recently suggested a series of reforms
the FTC could institute to strengthen the agency’s response to deceptive trade practices. Former Director Rich explains that the
agency is relatively small and “strapped for resources,” particularly in light of a Supreme Court challenge to the FTC’s ability to
sue companies for money to redress victims of deceptive business practices. For example, she points to needed reform in the
Bureau of Economics, which she says tries to opine on every matter. The analysis conducted by the Bureau of Economics could
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accounted for $40.1 billion dollars of sales in the United States in 2020 alone, with 7.7 million
independent distributors—up 13.2 percent from 2019.
142
The year the FTC began an investigation into
multi-level marketing company Herbalife, the company spent 800% more in lobbying than he it had
the previous year.
143
Political action committees for MLMs like Amway, Mary Kay, Herbalife, and Nu
Skin Enterprises donate thousands of dollars to legislators such as Krysten Sinema when faced with
federal policy that could negatively impact them.
144
Some critics doubt that the Amway Safeguards and Koscot test actually do enough to deter
pyramid scheme fraud.
145
The Amway Safeguards depend on MLMs to police themselves in many
circumstances, relying on them to hold independent distributors to standards such as the 70 percent
and “ten retail sales” rules.
146
Yet, with the Amway Safeguards in place, whether or not they are enforced
in practice, the FTC is limited to pursuing multi-level marketing companies under the theory that they
operate as pyramid schemes when they make misleading representations about earnings potential.
147
Those standards and logistical hurdles have made it difficult to address MLM companies that cause
complaints but have supposed safeguards in place. Although there were almost 18,000 complaints
about MLMs to the FTC from 1997-2005, the agency brought only twenty cases.
148
Since 2005, the
Commission has only brought an additional nine cases.
149
Ex post enforcement actions do not address the inherent structural problems of multi-level
marketing, but instead focus on those few companies that operate as pyramid schemes under the Amway
and Koscot standards or make false claims about specific products. But lawyers for multi-level marketing
companies can always craft language around FTC rules and implement the Amway safeguards to reform
sales practices without changing the structure of their companies.
150
Even in the cases where the FTC
does have the ability to bring enforcement action against a company, that company can successfully
defend themselves on the basis that they disclosed their actions through hidden or generic
be burdensome to FTC case load. Jessica Rich, Five Reforms the FTC Can Undertake Now to Strengthen the Agency, BROOKINGS (Mar.
1, 2021). https://www.brookings.edu/blog/techtank/2021/03/01/five-reforms-the-ftc-can-undertake-now-to-strengthen-the-
agency/ [https://perma.cc/24SG-C5YW]. Issues like those described by Former Direct Rich in the Bureau of Economics could
contribute to the FTC’s case burden and make it difficult to pursue action against every violating multi-level marketing company.
142
Direct Selling in the United States: 2020 Industry Overview, Direct Selling Association (2021),
https://www.dsa.org/statistics-insights/overview [https://perma.cc/F7GE-8VYE]; Miettinen, supra note 140.
143
Matt Stroud, How lobbying dollars prop up pyramid schemes, THE VERGE (Apr. 8, 2014), [https://perma.cc/JH7R-DXJH].
144
Fuchs, supra note 124.
145
Groß & Vriens, supra note 16, at 335-336. Bruce Craig, Herbalife, MLMs And The FTC: Some Questions And A Challenge
For Market Analysts And The Financial Press, SEEKING ALPHA (July 28, 2015) https://seekingalpha.com/article/3362825-herbalife-
mlms-and-the-ftc-some-questions-and-a-challenge-for-market-analysts-and-the-financial-press [https://perma.cc/2DGG-
84U6].
146
Pareja, supra note 52, at 95.
147
Id.
148
Id. at 94.
149
FTC Pyramid Cases Post-Amway, TRUTH IN ADVERT. (updated Oct. 14, 2021) https://www.truthinadvertising.org/ftc-
pyramid-cases-by-the-numbers/ [https://perma.cc/F8JX-L9RB]. Even given this volume of complaints, FTC assistant director
of the Division of Marketing Practices Kati Daffan “notes that the FTC receives fewer pyramids scheme complaints than people
may assume, perhaps because of the stigma of financial hardship.” Miettinen, supra note 140.
150
Pareja, supra note 52, at 95.
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disclaimers.
151
In effect, only the most egregious offenders are likely to interact with federal regulators.
More recently, the FTC has signaled a more committed mission to focus on multi-level
marketing companies. After the Commission brought only four pyramid scheme cases in over a decade,
in the last few years the agency has brought three cases in quick succession.
152
In a 2020 speech to the
Direct Selling Association, Commissioner Noah Joshua Phillips acknowledged the Commissions new
aggressive stance, granting that he understood that some members of the audience would disagree with
the FTC’s more rigorous strategy against multi-level marketing.
153
At least part of the uptick in
enforcement action appears to stem from the COVID-19 pandemic and misleading advertising claims
made in the six months preceding his speech. In April of 2020, the FTC sent warning letters to ten
MLMs instructing them to address agency concerns of misleading statements about the efficacy of their
products against the virus and the ability to make money from home through multi-level marketing.
154
A few months later in June, the FTC sent a second round of letters to more MLMs that made similar
claims.
155
In Commissioner Phillip’s speech, he also made one other thing clear—companies that make
false or misleading statements about their businesses contravene the law unless they disclose the fact
that most participants make very little or lose money in MLMs.
156
These enforcement mechanisms do not completely address the harm that MLMs cause their
participants. They generally only address complaints through enforcement on a case-by-case basis, and
on the grounds of requirements that are insufficient to properly police companies and do not get to the
root of what hurts participants in multi-level marketing. The current mechanisms only address cases in
which companies have misrepresented or not disclosed financial earnings potential. But as federal
action currently stands, it does not address the acknowledged
157
fact that the structure of an MLM
makes it almost impossible to make a profit and that, knowing this, multi-level marketing companies
disproportionately target vulnerable communities. As it is, only the worst actors are pursued and,
generally, when they have done something egregious like claim that their products are able to cure
cancer or COVID-19.
158
By the time these companies become notable enough to attract the attention
151
Id. at 95-96.
152
Bonnie Patten, A Multilevel Marketing Company’s Battle to Survive an FTC Pyramid Scheme Action, ADMIN. L. REV.
ACCORD 237, 240 (2020).
153
Noah Joshua Phillips, Commissioner, Fed. Trade Comm’n, Keynote of Commissioner Noah Joshua Phillips at the DSA
Legal & Regulatory Summit: Seller Beware 1 (Oct 15, 2020), https://www.ftc.gov/system/files/documents/public_statements/
1581726/phillips_-_dsa_remarks_10-15-20.pdf [https://perma.cc/8G8Q-69TM] [hereinafter Phillips Keynote].
154
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/press-
releases/2020/04/ftc-sends-warning-letters-multi-level-marketers-regarding-health [https://perma.cc/5RWK-RKDF].
155
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/press-releases/2020/06/second-round-warning-
letters-to-mlms-regarding-coronavirus [https://perma.cc/U89X-99LG].
156
Phillips Keynote, supra note 153, at 4.
157
Both the Federal Trade Commission and the Direct Selling Association acknowledge that participants are not likely
to make more than a modest income. Id.
158
See, e.g., 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/press-releases/2020/06/second-
round-warning-letters-to-mlms-regarding-coronavirus [https://perma.cc/2DTK-D3TX]; FTC and FDA Send Warning Letters to
Companies Selling Dietary Supplements Claiming to Treat Alzheimer’s Disease and Remediate or Cure Other Serious Illnesses Such as Parkinson’s,
Heart Disease, and Cancer, FED. TRADE COMM’N (Feb. 11, 2019), https://www.ftc.gov/news-events/press-releases/2019/02/ftc-
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of the FTC, they may have already targeted many people who have lost a significant amount of
money.
159
Given the income structure in a legitimate MLM and the inadequacy of the Amway and Koscot
tests, it does not necessarily help consumers that the Federal Trade Commission and other actors are
generally only able to pursue companies under the theory that they are illegal pyramid schemes—
especially considering that participants in MLMs generally lose more money than those in “no-
product,” traditional pyramid schemes.
160
Of the current and proposed strategies to alleviate harm by
MLMs, few consider the unique social factors tying participants to their companies.
IV. EFFORTS TO STRENGTHEN DISCLOSURE REQUIREMENTS ARE NOT SUFFICIENT
TO ADDRESS MLM HARM
Some people anticipated that the advent of the Internet would be beneficial to participants
who sought to join MLMs. With income reports and negative testimonials readily available online, it
seemed as though participants would be well equipped to research information that would lead them
to make well-informed decisions about joining an MLM.
161
Despite the unprecedented availability of
information, that has not totally come to fruition.
162
Participants are able to search for income
information themselves, but they are also repeatedly exposed to emotional ploy advertisements by
companies, pressure from their private connections, and increased online networks of other distributors
through social media. The question, then, became whether participants are better off when they are not
left to search for the information themselves, but when companies are required to disclose important
information about their average income earnings and products.
Companies already use disclosure requirements to some extent to avoid restructuring their
business. Disclosure requirements, like the Amway safeguards, are countermeasures that would ideally
prevent companies from taking advantage of participants. The Federal Trade Commission is concerned
with deceptive earnings claims, though a company can escape enforcement if it takes some effort to
inform its participants of their real earnings potential. But companies are sometimes able to skew
income disclosures to lessen their impact on participants or couch them in positive language that
obscures their true implications. There is evidence that fraud uptake is lessened when people have
information about the probability of success, but only in certain populations.
163
Much like aspects of
fda-send-warning-letters-companies-selling-dietary [https://perma.cc/W4HC-RT5K].
159
Corey Matthews, Using a Hybrid Securities Test to Tackle the Problem of Pyramid Fraud, 88 FORDHAM L. REV. 2045, 2062-
63 (2020).
160
TAYLOR, supra note 49, at 10-35 (explaining that participants in a pyramid scheme where there is no product, which
would be impermissible under the existing federal legal standards, are actually 10 to 100 times more likely to profit than
participants in an MLM).
161
Epstein, supra note 12, at 109.
162
See Silverstein et. al., supra note 91, at 15 (discussing the role that social media plays in deepening deception instead
of alleviating it). However, one study suggests that the prevalence of MLMs in the United States might be slowly declining, not
accounting for some evidence of an increase during the pandemic. William Keep, The Decline Of Multi-Level Marketing in the United
States by the Numbers, SEEKING ALPHA (Dec. 13, 2020), https://seekingalpha.com/article/4394496-decline-of-multi-level-
marketing-in-united-states-numbers [https://perma.cc/9DB8-HUV5].
163
Bosley, Bellemare, Umwali, & York, supra note 30, at 8-9 (finding that disclosure might lead to less fraud uptake in
some populations with high education attainment).
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the Amway safeguards, companies often find ways to skirt disclosure rules.
A. The FTC’s Franchise and Business Opportunity Rules
After a slew of franchise fraud in the 1970s, the Federal Trade Commission enacted a
“Franchise Rule” to inhibit the ability of deceptive companies to induce investors to join their company
without providing information about the company’s profitability.
164
Accordingly, the FTC adopted the
rule to prevent franchise fraud by requiring pre-sale disclosures that include a history of litigation against
the parent company and audited financial disclosures.
165
Fearful that the rule would put a heavy burden
on smaller scale opportunities (as opposed to growing companies like McDonald’s), the FTC carved
out exemptions to the rule when an opportunity does not require an initial investment of $500 within
six months.
166
Things like wholesale purchases for inventory and training do not apply toward the $500
investment.
167
Therefore, many MLMs, even large companies like Mary Kay, Avon, and Herbalife that
make profits in the millions, escape classification under the Franchise rule because they take care to
keep initial fees under that amount.
In response to the deceptive practices in business opportunities left unregulated by the
Franchise Rule, in 2006 the FTC began rulemaking on a new Business Opportunity Rule that would
fold MLMs into a similar framework and provide ex ante regulation against the industry.
168
There was
initially hope on the part of consumer advocates that revisions to get rid of income limits, which also
required less information from companies so that the disclosures would not burden small businesses,
would be implemented as a fair compromise.
169
In response, the Direct Selling Association spent $4
million on a lobbying campaign to have MLMs exempted from the rule.
170
MLM companies and their
participants flooded the FTC with form letters to oppose the rule.
171
In its 2006 10-K tax form,
Herbalife proclaimed that the rule in its original form would harm their U.S. operations.
172
When the
final rule was published, it included another carveout for the multi-level marketing industry: “the
Commission determined that the [rule] was unworkable with respect to MLMs . . . This decision was
based on the overwhelming majority of the approximately 17,000 comments that argued that the [rule]
failed to differentiate between unlawful pyramid schemes . . . and legitimate companies using an MLM
model.”
173
The response to these industry comments highlighted the “low economic risk” of
164
Pareja, supra note 52 at 90.
165
Id. at 90-92.
166
Id. at 92.
167
Id.
168
JON M. TAYLOR, CONSUMER AWARENESS INST., REGULATORY CAPTURE – THE FTC’S FLAWED BUSINESS
OPPORTUNITY RULE (rev. Aug. 2014), https://centerforinquiry.org/wp-content/uploads/sites/33/quackwatch/regulatory_
capture.pdf [https://perma.cc/DS8K-S2F6] (last visited Dec. 20, 2021).
169
Pareja, supra note 52, at 106. The proposed rule required only a 1-page disclosure document that gave information
about the seller, background principles, and litigation and bankruptcy. It also simplified the process so that companies could
simply check yes or no. Proposed FTC Business Opportunity Rule, 71 Fed. Reg. 19068.
170
See Pareja, supra note 52, at 106; Herb Greenberg, How Multi-Level Marketers Dodged a Bullet, CNBC (Jan. 9, 2013),
https://www.cnbc.con/id/100360456 [https://perma.cc/J88T-W3Z7].
171
Liu, supra note 54, at 121.
172
See Greenberg, supra note 170.
173
FTC Business Opportunity Rule, 70 Fed. Reg. 76,816, 76,819 (Dec. 8, 2011).
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participating in an MLM, which often only requires a startup fee of less than $100.
174
Instead, the
response said that the FTC will need to conduct an ex post review of MLMs to determine if they are
actually pyramid schemes masquerading as MLMs.
175
In short, the rule left multi-level marketing
regulation where it was at the beginning of the rulemaking process—able to skirt rules by technically
coming in below startup requirements and without ex ante expectations, despite the fact that MLM
participants are in as poor a financial position as participants of an illegal pyramid scheme.
B. Industry Self-Regulation
The DSA, the direct selling association that lobbied against an expansion of the Business
Opportunity rule,
176
is also in charge of policing self-imposed disclosure requirements by companies in
its industry.
177
As a private regulatory body, the DSA has established a code of ethics and complaint
reporting system to reign in fraudulent income reporting by MLMs.
178
But only 26.5 percent of DSA
member businesses actually make publicly available income disclosures.
179
And of those companies that
do make some kind of income disclosure, they may choose to withhold certain data or release
disclosures that are not well studied that could lead consumers to consider incomplete information by
not disclosing things that a distributor would have to spend money on like training and selling aids.
180
Former FTC Chairman Maureen Olhausen explained that self-regulators in this industry have “mixed
motives” and that poorly constructed disclosures are unlikely to provide a benefit to participants.
181
But
even though the FTC embraces the self-regulatory function of the DSA,
182
companies are sometimes
able to weaponize their self-disclosures to make them seem more trustworthy to prospective
participants—even if those disclosures are, in practice, misleading.
183
Even when companies adhere to
requirements of voluntary disclosure, they might follow the “spirit” of the regulation by providing
consumers with comprehensive, easy to digest information.
184
The current disclosure scheme in the federal government is not as strong as it could have been
if MLMs had been included in the Business Opportunity rule, or if they had been considered franchises
in the first place. But it is not clear that even that would have been enough to offset the harm that
MLMs cause. Studies have discovered some benefit to disclosure—namely, that it could lower earnings
expectations for someone who joins an MLM to earn income, as most participants do.
185
Yet, efforts
to focus on either mandated or voluntary disclosure as a solution are misguided because they do not
174
Id. at 76822.
175
Id.
176
See Greenberg, supra note 170.
177
Bosley, Greenman, & Snyder, supra note 10, at 1644.
178
Id.
179
Id. at 1645.
180
Id. at 1644.
181
Id.
182
Phillips Keynote, supra note 153, at 5-6 (showing how one FTC Commissioner applauded the DSA for their tertiary
effort to warn MLMs not to make false health claims about their products efficacy fighting the COVID-19 virus in April 2020).
183
Bosley, Greenman, & Snyder, supra note 10, at 1644.
184
Id. at 1660.
185
Id. at 1644, 1646.
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address social hierarchy and the role that trusted relationships play.
C. Why Disclosure is Not Enough
It often takes more to discourage a person from engaging in a behavior than just disclosure.
For example, studies reveal that calorie disclosures at eating establishments do not actually deter people
from choosing high caloric foods and drinks.
186
This would seem counter-intuitive if every person’s
motive in eating a meal was only to eat as few calories as possible and to maximize a particular ideal of
health. In reality, people choose food options for many reasons that rarely have to do with rational
choice, but are more often due to an “indescribable” combination of flavor, texture, and emotion.
187
Because disclosure requirements do not take those aspects into account and only seek to control calorie
intake, they tend not to accomplish deterrence goals. Likewise, participants join MLMs for reasons that
go beyond the rational choice theories underlying income disclosures. The social factors that bring
participants to MLMs, namely that they are recruited by trusted connections in community settings,
also keep them in the organization. Although income is typically one of the most important aspects of
multi-level marketing to potential participants, the desire for additional income is only one factor in
their decision-making. The choice to join an MLM entails a combination of desire for income,
friendship, self-image, and autonomy. Because of this, it is “extremely rare” for MLM participants to
recognize the unfair nature of the business structure without intensive intervention.
188
It is not easy for participants to leave MLMs. Distributors might not have another job
opportunity to turn to next, and a sunken cost fallacy might compel them to try and make the business
work.
189
MLMs also invest in socialization and marketing that could make participants less aware that
their company is ethically problematic—or that their own behavior is similarly problematic.
190
People
also have an aversion to feeling duped and are motivated to avoid that feeling, which can cause shame
and guilt.
191
Being duped in the first place relies on placing trust in another party.
192
However, while
the ability of one party to dupe another usually increases when there is information asymmetry,
193
disclosures may still not be enough to balance the situation because participants place such a significant
level of trust in companies and their upline connections.
These factors might lead participants to reject earnings disclosures that could otherwise
balance information asymmetry. For disclosures to effect decision making participants must
acknowledge that they were duped, a feeling that they want to avoid, and also that they were duped by
their close connections. People are already likely to avoid admitting that they have been duped.
194
This
186
Michael S. Rosenwald, Calorie Counts Don’t Change Most People’s Dining-Out Habits, Experts Say, WASH. POST (July 6,
2011), https://www.washingtonpost.com/local/calorie-counts-dont-change-most-peoples-dining-out-habits-experts-say/
2011/06/30/gIQAhAqO1H_story.html [https://perma.cc/8ZHR-VHPW].
187
Egon Peter Koster, The Psychology of Food Choice: Some Often Encountered Fallacies, 14 FOOD AND QUALITY
PREFERENCE 359, 365 (2003).
188
Taylor, supra note 24, at 11.
189
Liu, supra note 54, at 129.
190
Groß & Vriens, supra note 16, at 340.
191
See Vohs et. al., supra note 119, at 128 (2007).
192
Id. at 130.
193
Id. at 131.
194
Id. at 132.
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cognitive dissonance could prime them to accept explanations for worrying income disclosures by
MLM headquarters and uplines, leading participants to disregard disclosures. People are reluctant to
signal a negative attitude toward people giving them advice.
195
This effect is amplified in developed
social relationships because people care about maintaining harmony in their relationships.
196
Multi-level
marketing companies sometimes conduct their business in a “quasi-religious” manner and rely on
indoctrinating participants to enforce a “strong sense of community.”
197
The source of socialization in
MLMs is often the distributor network, or a participant’s upline, instead of the company themselves.
198
Most of the socialization that serves as a catalyst for membership in an MLM comes from other
participants who form community in the structure, not necessarily from those at the top. Research
shows that disclosures often do not undo the effects of biased advice—in the case of MLMs the
recruitment pitch by a connection—but might actually increase trust in the entity that made the
disclosure.
199
Particularly in the case of MLMs, where recruiters are connections that the potential
distributor would have a compelling social reason to avoid hurting, insinuation anxiety, or the concern
that rejection of advice may be interpreted as distrust,
200
would work against deterrent effects of
disclosure. Therefore, even if a recruiting participant must provide a disclosure from the headquarter
company, there is a chance that this disclosure would lead the recruit to trust them more.
Critics of FTC disclosure elements in the Franchise and Business Opportunity Rules have said
that neither was enough to end opportunity abuse even if broadly applied. Scholars at the time of
drafting pointed out that the Business Opportunity Rule would not be enough to deter MLMs.
201
In
regard to the Franchise Rule, franchisors and franchisees are not on equal playing ground—the parent
company is a more sophisticated actor. But even though franchisees have less information than the
franchisor, the franchisee is often overly optimistic about their prospects for success and avoids reading
disclosure documents because of this bias.
202
People who are optimistically biased about their risks are
unlikely to seek out and digest information about those risks.
203
In this context, the less sophisticated
actor, the franchisee, is not equipped to rationally assess the risks imposed on them by the franchisor’s
opportunism.
204
There is already optimism bias in other business dealings—this is heightened when it
comes to multi-level marketing.
Critics of MLM participants fail to recognize how this optimism bias plays into decision
making, and those blind spots are compounded by apathy for “duped” women. Seen in another context,
in Vokes v. Arthur Murray, a widowed woman spent thousands of dollars to receive dance instruction
195
Id. at 1100.
196
Id.
197
Groß & Vriens, supra note 16, at 340-341.
198
Id. at 342.
199
Sunita Sah, George Loewenstein & Daylian Cain, Insinuation Anxiety: Concern that Advice Rejection Will Signal Distrust
After Conflict of Interest Disclosures, 45 PERSONALITY AND SOCIAL PSYCHOLOGY BULLETIN 1099, 1109 (2019).
200
See id.
201
Pareja, supra note 52, at 107.
202
Uri Benoliel & Jenny Buchan, Franchisees’ Optimism Bias and the Inefficiency of the FTC Franchise Rule, 13 DEPAUL BUS.
AND COM L.J. 411, 426 (2015).
203
Id. at 427-28.
204
Id. at 420.
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from a professional studio.
205
Despite the fact that Ms. Vokes was not progressing and, at her age, was
unlikely to become a superb dancer, she continued to give the studio her money for increasingly
expensive lessons and trips.
206
But people do not behave rationally in many contexts. In this case, Ms.
Vokes was frequently encouraged by the studio, told that she was a great talent, and thoroughly taken
advantage of despite her willing participation. Yet, the district court was not sympathetic when she sued
the studio.
207
In dismissing her complaint, the court apparently ignored extenuating factors that led Ms.
Vokes to act in an irrational way: that she was potentially lonely because of her social conditions, that
the studio leveraged their power over her to create optimism bias, and that she was less likely to
acknowledge the signs that her probability of success because of this bias.
MLMs appeal to emotion through events that encourage emotional intensity and over-rely on
successful outcomes, however rare they are.
208
Participants often, because of their social ties and
because MLMs sometimes foster quasi-religious organizations, feel strongly connected to the business.
This positive thinking is deeply embedded into the culture of and historic structure of multi-level
marketing.
209
Optimism-bias and the emphasis on positive thinking facilitates group cohesion. In
MLMs, an emphasis on grit and hard work, despite the realities of success or failure, keeps some
participants involved in the company.
210
Self-doubt is a sign of weakness.
211
In the case of one MLM,
participants were told specifically to “never post anything negative on [their] Facebook . . . no drama.
Like [they] were supposed to filter [their] Facebook as though once [they] joined ItWorks all [their]
problems went away.”
212
If they are approached by someone who argues with them about multi-level
marketing or doubt claims participants make in their outreach efforts, distributors are instructed on
how to counter that criticism.
213
Within their own social groups, distributors rely on one another to
affirm their belief in the success of their MLMs.
214
Disclosures can be welfare-improving because they can help temper expectations around
earnings.
215
But they are unlikely to deter participants from joining MLMs. Instead, they might lead
205
See Vokes v. Arthur Murray, Inc., 212 So. 2d 906 (Fla. Dist. Ct. App. 1968)
206
See id. at 906-08.
207
Id. at 906 (explaining that the district court dismissed Ms. Voke’s complaint with prejudice for failure to state a cause
of action).
208
Liu, supra note 54, at 125.
209
William Penn Patrick, founder of Holiday Magic, was influenced by Norman Vincent Peale’s book “The Power of
Positive Thinking,” which instructed adherents to only think positive thoughts and to exude self-confidence, “[elevating]
capitalism and [honoring] wealth,” which Penn Patrick drew from to develop training programs for Holiday Magic. The Dream,
The Mind is a Fertile Field, at 4:15-10:00, 21:00-22:00 (Oct. 8, 2018) (explaining also that the language embedded in MLMs like girl
boss is rooted in a the positive thinking movement and playing audio clips of an early MLM founder and MLM advisors who tell
participants that if they do not succeed it is their own fault and not a structural failure of the business) (streamed using Spotify);
see also The Dream, Wanna Swim in Cash?, at 4:31 (Sep. 24, 2018) (explaining the influence of the human-potential movement on
the nascent multi-level marketing industry, which stresses the importance of positive thinking and self-manifestation to create
abundance) (streamed using Spotify).
210
Liu, supra note 54, at 128.
211
Id. at 130.
212
See Silverstein et. al., supra note 91.
213
Groß & Vriens, supra note 16, at 339.
214
Id.
215
Bosley, Greenman, & Snyder, supra note 10, at 1657.
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outsiders to blame participants for not heeding warnings, which obfuscates the complex social reasons
that bring participants to MLMs and the psychology of optimism bias.
D. The Complex Problem Of Developing Solutions That Benefit Participants
Policymakers have to address a series of questions to regulate MLMs: how to improve the
outcomes for a business when the people being harmed do not want help, how to incorporate the
voices of the vulnerable groups who are being most harmed in the solution, and how to ensure that
any new regulation does not cause more harm to participants. Each is a complex puzzle with no easy
answers.
In seeking solutions to the harm caused by multi-level marketing companies going forward,
regulation should take seriously the benefit that people derive from MLMs. Because participants join
MLMs for both economic and social reasons, regulatory efforts cannot ignore one for the other. They
cannot regulate multi-level marketing as a purely economic activity because that ignores any social
benefit that people believe they receive—and by the same token, those efforts cannot ignore the real
economic harm vulnerable people experience just because those people derive some benefit from an
organization. This is what makes regulating MLMs so difficult.
The benefits of mandatory disclosure can be helpful to the extent that they are able to confer
any amount of gain to a participant. Perhaps the least controversial of proposals, federal agencies could
increase advocacy and education efforts toward vulnerable populations to spread awareness about the
dangers of multi-level marketing.
216
In reaching out to current participants, there are documented
cognitive benefits to helping people understand how they have been duped.
217
The Federal Trade
Commission has previously conducted outreach to vulnerable, marginalized communities who are most
susceptible to fraud.
218
Under the Biden Administration, it could continue to facilitate that outreach to
communities most likely to join MLMs.
But outreach and advocacy alone does not address structural issues that draw people to multi-
marketing or allow those businesses to exploit participants in the first place. In terms of structural
modification, however, one significant obstacle is that multi-level marketing participants and the DSA
are likely to oppose any suggested change to the industry. Even though 99 percent of participants will
make no profit, MLM participants often oppose punitive actions against their companies. When the
FTC attempted to implement the Business Opportunity Rule, participants wrote opposition letters en
masse.
219
Perhaps the simplest way to eliminate harms from MLMs would be to ban them entirely, but
proposals that seek to completely rid the marketplace of multi-level marketing will meet significant
pushback. Some commentators have proposed rules that would ban MLMs from allowing recruitment
or rules that would restructure the commission process and distribution of income between the upline
and downlines.
220
Given how steep the financial loss in an MLM is, this is an attractive solution. It is,
however, worth acknowledging the legitimate purposes that MLMs serve. People, particularly women
who face pressure to balance work, family, and cultural expectations, need a way to earn income on the
216
Groß & Vriens, supra note 16, at 347.
217
See Vohs et. al., supra note 119, at 132-33.
218
Bosley, Bellemare, Umwali, & York, supra note 30, at 2.
219
Liu, supra note 54, at 121.
220
Groß & Vriens, supra note 16, at 347.
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flexible schedule that MLMs provide.
221
Holistic strategies to support participants limit the power of
MLMs as well as provide for those participants’ needs.
Most people who enter an MLM are looking for additional income to their family and even
see themselves as small business owners. But because participants in an MLM are technically
consultants, or contractors, they do not qualify for benefits normally given to employees and parent
companies are not subject to federal and state minimum wage requirements.
222
In this way, distributors
in an MLM resemble gig economy workers.
223
A growing movement in the United States has pushed the federal and state governments to
classify gig economy workers as employees.
224
In 2018, the California Supreme Court ruled that
employers who claimed their workers were independent contractors must pass a three-prong test in
order to avoid classifying their workers as “employees” who are entitled to full employment benefits.
225
The state legislature strengthened this ruling by passing Assembly Bill 5, a bill that strengthens
requirements on employers to reclassify their contractors as employees.
226
Pursuant to the bill, a former
Amway distributor filed a complaint against the company in California as part of a class action alleging
that Amway improperly classifies workers as independent distributors when they should be full
employees under the law.
227
If efforts such as that care were successful, this approach would force
multi-level marketing companies to give their distributors minimum wage and, when applicable,
benefits like healthcare, sick leave, and retirement options.
After AB-5 was passed in California, gig economy startups like Uber and Lyft spent $200
million fighting for a ballot measure, Proposition 22, that exempts gig economy workers from the
independent contractor classification—and in just one state.
228
After months of battle about the
measure, gig workers were ultimately successful.
229
The Biden Administration rescinded a Department
221
Perhaps as more workplaces see that virtual work is possible, traditional workplaces will expand these opportunities.
That hope may be wishful thinking, especially considering that MLMs saw growth during the pandemic and the wider availability
of virtual work. See Michael Waters, ‘They Saw an Opportunity With the Pandemic’: How Social Media Platforms Gave Multi-Level Marketing
a Coronavirus Surge, MODERN RETAIL (Nov. 10, 2020) https://www.modernretail.co/retailers/they-saw-an-opportunity-with-the-
pandemic-how-social-media-platforms-gave-multi-level-marketing-a-coronavirus-surge/ [https://perma.cc/4W2G-4489]. It is
possible, however, that MLM growth resulted instead due to growing unemployment and this growth has no implications for the
future of virtual work if there is rebound in the job market post-pandemic.
222
Liu, supra note 54, at 133.
223
R. Todd Eliason & Sarah Paulk, Direct Selling vs. The Gig Economy, DIRECT SELLING NEWS (Nov. 27, 2018)
https://www2.directsellingnews.com/direct-selling-vs-the-gig-economy/ [https://perma.cc/XL3C-Z2T4] (explaining that
direct selling industry insiders acknowledge that the relationship between direct selling and gig workers is uncomfortably close).
224
Veena Dubal & Juliet B. Schor, Gig Workers Are Employees. Start Treating Them That Way, N. Y. TIMES (Jan. 18, 2021),
https://www.nytimes.com/2021/01/18/opinion/proposition-22-california-biden.html.
225
Dynamex Operations W., Inc. v. Superior Court, 416 P.3d 1, 7 (2018).
226
Assemb. B. 5, CH 296, Reg. Sess. (Ca. 2019)
227
See John C.C. Sanders, Katrina G. Eash & William G. Fox, New Class Action Calls Into Question MLM’s Independent-
Contractor Classifications, WINSTON & STRAWN LLP (May 26, 2020), https://www.winston.com/en/direct-sellers-update-
regulation-law-and-policy/new-class-action-calls-into-question-mlms-independent-contractor-classifications.html
[https://perma.cc/UMY5-PEQE].
228
Kate Conger, Uber and Lyft Drivers in California Will Remain Contractors, N. Y. TIMES (Nov. 7, 2020).
https://www.nytimes.com/2020/11/04/technology/california-uber-lyft-prop-22.html [https://perma.cc/CT56-FRUR].
229
Id.
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of Labor rule that mimicked the outcome of Proposition 22 in California.
230
After, the agency was
poised to submit guidance that standardizes the California Supreme Court’s three-prong test, something
that President Biden called a priority during his campaign.
231
Given the willingness of participants to
defend MLMs, it is likely that if measures were extended to reclassify independent distributors as
employees, they would create a counterattack. Forcing companies to classify distributors as employees
would cause a larger burden on them than the Business Opportunity rule would have and would likely
provoke a proportionate response.
But if the goal is to preserve the aspects of MLMs that distributors need, like flexibility and
community, and to eliminate the aspects that cause harm, like the downline structure that makes it
virtually impossible to turn a profit, does it need to go as far as imposing full employment
responsibilities? Distributors could be classified as part-time hourly employees. This would allow them
to retain their flexibility and to receive a minimum wage. Alternatively, independent distributors could
be considered commission-based workers, like sales representatives who derive the majority of their
income from portions of sales or from rewards for making certain deals. Commissions based employees
receive minimum wage when they fall short of federal and state wage requirements—though
participants do not currently qualify for this category because of exemptions.
232
The move to reclassify
distributors as employees, however, would radically change the industry in a way that is politically
infeasible.
A more effective regulatory scheme to address harm by MLMs would listen to the people in
them about what attracted them to those businesses in the first place and address those needs. This
means that regulation cannot come only from the FTC or the Department of Labor. More holistic
reforms should seek to cure the underlying issues that are so compelling they keep participants in a
business structure that provides them with no net economic benefit and often hurts their social
relationships. For MLM participants, and especially for women within them, the main draw is a job that
allows flexible work from home and the opportunity to grow community. Regulatory efforts need to
address those issues for there to be any real chance to dismantle the harmful aspects of multi-level
marketing.
Creating solutions that could dismantle MLMs means embracing policies that allow vulnerable
communities real choice in deciding how to support themselves and their families. For example, people
who oppose MLMs should call for employers to provide more work-from-home opportunities and
flexible schedules that accommodate caregivers.
233
Creating more flexible workplaces also includes
abundant leave opportunities and fair pay for all. Closing wealth gaps gives predatory companies less
opportunity to prey on disempowered people. Because childcare is so important for people who join
230
Eric Mulvaney, Uber Will Push to Shape Direction of Biden Gig Worker Regulation, BLOOMBERG L. (Mar. 12, 2021),
https://news.bloomberglaw.com/daily-labor-report/uber-will-push-to-shape-direction-of-biden-dols-gig-worker-rule
[https://perma.cc/98K9-UKV5].
231
Id.
232
Do You Need to Pay Minimum Wage or Overtime to Your Commission-Paid Employees?, FOLEY & LARDNER LLP (Sept. 21,
2015) https://www.foley.com/en/insights/publications/2015/09/do-you-need-to-pay-minimum-wage-or-overtime-to-you
[https://perma.cc/5MG9-FFXV] (explaining that the Fair Labor Stands Act and state wage laws usually grant over-time and
minimum wage to employees unless they “outside” salespeople who regularly work away from the business in the sale of goods).
233
In addition to traditionally being the primary caregivers to children, women also make up the majority of caregivers
for the elderly. Women, Caregiving, and COVID-19, CENTERS FOR DISEASE CONTROL AND PREVENTION,
https://www.cdc.gov/women/caregivers-covid-19/index.html [https://perma.cc/4EAX-CKA2] (last visited July 26, 2021).
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MLMs, initiatives for universal childcare and for the government to provide compensation for primary
child caretakers could address one reason why so many women feel compelled to join MLMs.
234
Policymakers who want to diminish the power of direct sales need to acknowledge the needs of those
who direct sales companies target. Perhaps if participants resist regulation to the point where it is
politically impossible, the better option is to give people the underlying support they need to be drawn
away from those fraudulent opportunities.
V. CONCLUSION
The most attractive regulatory solution to multi-level marketing harms is more punitive
measures by federal regulators—or to completely eradicate and make illegal companies that follow the
multi-level marketing structure. But those solutions do not prioritize the needs of those who are most
harmed by these business practices. Any proposal for consumer protection should look to the unique
social conditions of an MLM: the fact that they are more likely to target women, target women within
vulnerable social groups, use those targets for their trusted connections, and facilitate optimism bias
and group cohesion through those trusted connections. It also needs to address why so many people,
especially women, are drawn to the multi-level marketing structure and why those participants resist
change to the industry. Historic and cultural conditions inhibit the ability of many women to have more
traditional jobs. Those women are often drawn to flexible work that allow them to care for their families
and foster their trusted relationships. But what really occurs is that people join MLMs because of their
connections, most of them make no profit at all, experience social harm, and then are unlikely to leave
without serious intervention. If imposing rules that put at least some profit into the hands of
participants destroys those companies, then they are not a viable option for women or vulnerable
communities. But strategies that seek to undermine this destructive effect of MLMs needs use
government and community resources to lessen the ability of MLMs to also address historic and cultural
conditions that drive women to MLMs in the first place.
234
Women are more likely to make career sacrifices for their children and bear the brunt of the lack of access to
childcare. Leila Schochet, The Child Care Crisis Is Keeping Women Out of the Workforce, CTR. FOR AMERICAN PROGRESS (Mar. 28,
2019) https://www.americanprogress.org/issues/early-childhood/reports/2019/03/28/467488/child-care-crisis-keeping-
women-workforce/ [https://perma.cc/96WZ-CBJW].
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