MLMs Are Using Coronavirus Anxiety To Exploit The Quarantined And Unemployed
The salesman had an enticing offer: For a fee, aspiring entrepreneurs could join him in a low-risk, work-from-home business venture with unlimited earning potential — even as the coronavirus pandemic upended millions of people’s financial futures, plunging families across the country into debt. “You’re quarantined in your house,” he declared, and selling Primerica life insurance could be a chance to “be greedy when others are scared.”
This pitch from Daniel Alonzo, Primerica’s poster child, was part of a promotional webinar filmed in April that seized on COVID-19 anxieties to draw new sellers into Primerica’s multi-level marketing (MLM) empire. It’s a tactic that’s being employed by a striking number of distributors from various MLMs, who shill products or services directly to consumers on behalf of the companies while recruiting as many additional sellers as possible. Now, amid an economic crisis, they are pushing their business opportunities as fast-track tickets to financial freedom.
The reality is much different. Inside the multibillion-dollar MLM industry — where commissions are filtered through a pyramid-like structure of independent, non-salaried sales force members who pay to play — at least 99% of recruits end up losing money, according to a report published by the Federal Trade Commission.
Whether they’re selling insurance, essential oils, skincare kits, dietary supplements, hair products, makeup, household items or leggings, MLM distributors’ incomes are contingent upon their ability to bring new people into the enterprise. Each distributor receives a portion of their “downline” recruits’ commissions while forfeiting a portion of their own commissions to the “upline” individual who recruited them, and so on. Many MLMs also require distributors to purchase their inventory and then resell it.
It’s a highly controversial compensation system that has left many in financial ruin — in extreme cases, liquidating their assets or taking out second mortgages on their homes — as they’ve struggled to work their way up the chain. Meanwhile, the companies at the top grow rich; Primerica reportedly rakes in millions of dollars in fees from its distributors every month.
Under the weight of such pressure, MLM distributors are notorious for resorting to predatory methods to lure in new downline members under false or misleading pretenses. And now, as jobless claims top 40 million, many distributors are spreading wild and unsubstantiated earnings claims on social media to recruit new sellers.
“Tens of millions of Americans are out of work and trying to make ends meet. It’s a very susceptible population, and what’s happening is certain MLM companies and distributors are preying on those vulnerabilities and deceptively saying that you can make money if you become a distributor — which, as a general matter, is just not true,” said Bonnie Patten, the executive director of nonprofit watchdog Truth in Advertising.
The pandemic is also creating a whole new potential customer base of people who are terrified of contracting the potentially deadly virus. Many MLM distributors are touting fake COVID-19 cures that appear to run afoul of federal truth-in-advertising laws.
Grand Claims About Miracle COVID-19 Treatments
The FTC sent warning letters to 10 MLMs last month concerning false and misleading claims from distributors — and in a few cases, official company marketing channels — about income opportunities and products’ abilities to ward off COVID-19. It was the agency’s first batch of warning letters to address claims related to the economic fallout from the crisis.
“Living in quarantine and where 14 million people applied for unemployment just last week,” an Arbonne cosmetics distributor posted online. “Turn a small investment into six figures.”
“I can tell you that there’s thousands of people that are out of work right now. They’re all looking for a way to go earn money. This is a great stimulus package, because you get to teach somebody how to go earn $1,730 literally in their first 10 days in the business,” claimed a distributor for ketogenic supplements firm Pruvit.
“Everyone’s getting stimulus checks right now,” stated a video that weight loss company It Works! posted to its corporate Facebook page. “There is no better investment you could do.”
“HOW WILL YOU FIGHT OFF CORONA? USE NUTRABURST-CHAGA,” a distributor for Total Life Changes, a wellness MLM, urged in an online post.
“Want to join me in drinking Zeal to combat the Corona Virus?” asked a Zurvita distributor, who sells nutritional supplements for the firm. “Learn how to be your own Corona Virus Super Hero!”
Under the FTC Act, claims about business opportunities’ “potential to achieve a wealthy lifestyle, career-level income, or significant income” can be unlawful if they don’t reflect the experience of an average participant. It’s also illegal to advertise “that a product can prevent, treat, or cure human disease” without scientific evidence; no product has been scientifically proven to prevent, treat or cure COVID-19, according to the Food and Drug Administration.
Reached for comment, the FTC referred HuffPost to a statement from Andrew Smith, the director of the agency’s Bureau of Consumer Protection: “MLMs and other companies that distribute their products through networks of distributors are responsible for the product and earnings claims those distributors are making,” Smith said. “During this health and economic crisis, we are on the lookout for false income claims for work-at-home opportunities, in addition to spurious health claims that products can treat or prevent COVID-19.”
In the end, consumers pay the price of MLMs’ failures to police their representatives’ advertising efforts — an issue that long predates the COVID-19 outbreak, said Patten.
“The inappropriate income claims [from MLM distributors and officials] are not new,” she said, “but they’re now using the pandemic as a hook to draw more people in.”
A ‘Cultlike’ Mentality
Jessica, a 35-year-old makeup artist and aesthetician from Mississippi, first got involved with MLMs as a single mother in 2012. A co-worker had recommended that she join Arbonne as a downline distributor to earn some extra cash. It sounded like an ideal way to supplement her income, so she paid a fee to sign up and hoped for the best. It was the first of three MLMs, including Nu Skin and Primerica, that she would work under in a five-year period.
Things didn’t go as planned: “I didn’t end up recruiting anyone,” said Jessica, who asked to be identified by her first name only to protect her privacy. She said she lost money in each role, but feels “very lucky” that her losses were minor compared to other MLM distributors’ experiences.
Now an anti-MLM advocate, Jessica says she’s not surprised that so many distributors appear to be taking advantage of the pandemic for their own gain. She describes the industry workforce as a “cultlike” movement that lures people in with a dream of financial prosperity before hanging them out to dry. A number of books and studies have also drawn comparisons between the techniques that MLMs and cults use to court new members and maintain their loyalty. As of 2018, there were 6.2 million MLM distributors in the U.S., three-quarters of whom were women.
“So often, these women are desperate,” said Jessica, who works with an activist group called Americans Against Multi Level Marketing. “A lot of MLMs have a minimum amount [of inventory] you have to order every month to stay active. If you don’t sell that, you end up just spending more and more money. Then you’re left with a pile of products on hand, which in some cases can expire. They’re desperate to get their money back.”
This desperation is undoubtedly fueling the wave of MLM distributors’ opportunistic, unsubstantiated health and earnings claims tied to COVID-19, she said.
“They will use anything. They’ll even use death — anything they can to recruit or sell.”
Some distributors have been asking people in their social media networks for cash donations, which they claim they will use to buy supplies or care packages from their MLMs to give to frontline health care workers, CNBC reported. Experts told the news outlet that such requests are marketing ploys intended to boost the distributors’ sales volumes, and that people wishing to support doctors and nurses should donate to reputable aid groups.
In recent years, the rise of social media has made it much easier for MLM distributors to connect with potential customers and recruits. The anti-MLM community refers to distributors as “huns” because they so often pop into people’s DMs, or direct message inboxes, with pitches that open with the greeting “Hey hun!” But as lawsuits accusing MLMs of operating exploitative compensation schemes continue to mount, social media has also facilitated grassroots pushback against the industry. In Facebook groups such as “Sounds like MLM but ok,” which has more than 170,000 members, women speak out against the MLMs they used to shill for.
“Never in my life did I think I would have to argue with a ‘friend’ for 4 hours about [haircare MLM] Monat,” reads a recent post, which features screenshots purporting to show a conversation with a pushy Monat distributor. “MLMs are really out here turning people into heartless huns.”
Has The Industry Heard The Warning Shots?
The coronavirus pandemic has served as a resounding wake-up call for the MLM industry, according to attorney Kevin Thomson of Thompson Burton PLLC, who represents MLM companies.
“It was actually a pleasant surprise to see [the FTC] try to educate the marketplace through warning letters, and it was very effective,” Thompson said. “It led to a lot of activity in the industry and a really good discussion about, ‘OK, clearly health claims and income claims need to be reined in and put under control.’”
A number of MLMs have recently taken steps to keep their distributors in line during the coronavirus outbreak.
Rodan + Fields, which was among the MLMs that received warning letters from the FTC, sent a letter to its distributors instructing them to “not link challenges created by the COVID-19 pandemic and/or economic situation in any way to the R+F business opportunity in any of your communications on or off social media.” It also ordered them to avoid using words including “quarantine,” “recession” and “shutdown” in their marketing efforts.
Jeunesse added a disclaimer label to the home page of its website, urging distributors to “not misrepresent our products” with claims about treating COVID-19. Other MLMs have adopted measures such as Zoom compliance trainings for distributors, and have invested in software to find and flag online posts containing problematic claims, Thompson said.
The BBB National Programs’ Direct Selling Self-Regulatory Council, along with the Direct Selling Association, which lobbies against MLM regulation, have also stepped in to remind distributors to exercise caution when making marketing claims.
“We have the obligation [and] the opportunity to give accurate information. Similarly, we have to make sure we don’t give misinformation — about what our products do, about our opportunity — particularly at a time like this to not be seen [as] or in fact [be] taking advantage of a crisis situation,” DSA President Joe Mariano said in a company video. “We’re going to be very, very vigilant … about making sure that our sales folks are accurate in what they say about their products, especially when it comes to this virus and what they might or might not do.”
These efforts indicate a broader trend of MLMs taking accountability for their distributors’ claims — a trend that will continue beyond the pandemic, Thompson asserted.
“What happened with COVID, companies that really had a loose connection with the field, they weren’t able to stop the claims,” he said. “Now I think they’re taking it more seriously. I think actually, COVID shocked the companies and the industry to take the statements made by their distributors more seriously.”
Patten isn’t so sure.
“We’ve found that it’s a game of whack-a-mole,” she said. “Historically, when MLM companies are presented with a sampling of inappropriate income claims [from their distributors], they’ll work to take those down, but then others will just pop up.”
The MLM industry’s response to the FTC’s warning letters is a good start, Patten added, but she’s “not holding [her] breath” for lasting change.
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