MLM Scammer: Then Why Hasn’t [My MLM] Been Shut Down by the Authorities?

When an MLM is confronted with the knowledge that their business might be illegal, they ask a simple question, "Why haven't they shut down [My MLM]?"

Depending on the MLM and the alleged illegal activity there are a variety of answers. Typically the agency that would be in charge in keeping most MLMs in check is the FTC. After all they've gone on record as saying, "Not all multilevel marketing plans are legitimate. Some are pyramid schemes.". In addition to that, they've successfully ended Nexgen 3000, BurnLounge, JewelWay and more. Here are some of the reasons why the FTC hasn't the FTC shut down a particular MLM:

FTC doesn't have the Resources Available

If you haven't noticed the United States government is in lot of debt right now - and that's the understatement of the year. The FTC is also very underfunded. This MSNBC article points out that the FTC doesn't have the funding to fight a single company flouting the law, FreeCreditReport.com. There's little money for the FTC to keep up with and fight the hundreds of MLM companies.

Shutting down a company is no easy task. The FTC has to build an airtight case and bring it to the Justice Department for prosecution. The FTC can be gathering information for years. After that, it can take years for a case to be resolved once it gets started - the Nexgen 3000 is one example of that. That's not only a lot of time, but it is a lot of money to lawyers.

The SEC doesn't have the Resources Available

Some MLM supporters suggest that public companies like the SEC would surely look into publicly traded companies like HerbaLife. However, the SEC's resources are limited much like the FTC. Here's a Twitter post from reputable personal finance magazine Kiplinger's:

"With fewer than 4,000 employees, the SEC oversees 11,700 investment advisers, 9,700 mutual funds and ETFs, and 4,500 brokerage firms."

Since Kiplinger's is a very trusted source, I believe the numbers to be accurate. If anyone has contrary data, he/she is free to add it to the comments.

No One is Policing the MLM

In the grand scheme of things, most MLMs are too small to even be bothered with. Even the biggest ones fail to compare to the size of other famous scams that bilked consumers out of billions of dollars. For example, there is the Enron Accounting Scandal that continued for years. If a very public company worth tens of billions of dollars can hide its illegal activity it is clear how the smaller MLM companies can get away with it. (If you get a chance read more about the Enron Scandal by Malcolm Gladwell.)

Another relevant case is the one of Bernie Madoff. You may remember him as the guy who ran a $50 billion dollar Ponzi Scheme for 17 years without being caught. What you might not know is that someone (Harry Markopolos) did tell the SEC, but they wouldn't listen. Most MLMs don't reach the $50 billion dollar range, but even if they did, one could presume that it would be possible to hide the illegal activity for at least 15 years as Madoff did.

The MLMs have Friends Inside the FTC

Robert L. FitzPatrick of Pyramid Scheme Alert has another reason. He notes that in 2000, the Timothy Muris was appointed to chair the FTC by President Bush. At that time, Muris was an anti-trust lawyer whose largest client was Amway - a MLM company. In his report, Main Street Bubble, he details exactly how the current FTC body has ignored decades of previous FTC precedents and neglected to enforce the laws in place. It is an outstanding read and one that all MLM distributors and potential distributors should take the time to grab. It could save them thousands of dollars.

Any of the three reasons above alone are reasonable and logical answers to why a particular MLM hasn't been been shut down by authorities.

Bottom Line: Don't confuse lack of enforcement with legality.

In a town without police officers, it is possible for a thief to get away stealing little old ladies' purses. It doesn't mean that it is legal to do so.

This post involves:

MLM Scam

... and focuses on:


3 Responses to “MLM Scammer: Then Why Hasn’t [My MLM] Been Shut Down by the Authorities?”
  1. Dan Says:

    Yesterday FTC and Three State Attorney Generals from Illinois, Kentucky and North Carolina shut down an MLM company called Fortune Hi Tech Marketing. The affects all where felt with publicly traded companies like Herbalife and Visalus

    http://video.msnbc.msn.com/cnbc/50618396#50618396

  2. Junior lopez Says:

    Do you believe ACN the mlm company that has been running for 20 years is a scam????

  3. mlmmyth Says:

    Well, the FTC found that Fortune Hi-Tech Marketing as a pyramid scheme and they were in business for 10 years. A similar thing was found with Vemma which was around 9 years or so.

    Billionaire Bill Ackman has put together a pretty convincing case that Herbalife is a scam in my opinion. It’s been around for 30 years and they are being investigated by numerous agencies.

    Given this, I don’t put any value in a company “being around” for a long time. As this Bloomberg article points out, The FTC Can’t Put an End to Pyramid Schemes.

 

Previous: The MLM Gas Station and $8/Gallon Gas
Next: MLM Myth: Global Expansion Makes an MLM Legit