My motives and my credentials which qualify me to make such claims deserve scrutiny. What follows is my relevant background and what I went through in researching this report for the benefit of consumers, legislators, and regulators. First, my educational credentials include an MBA degree from Brigham Young University in 1965 and a Ph.D. in Applied Psychology from the University of Utah in 1986. An inveterate entrepreneur and communicator, I have over 30 years of sales, marketing, and entrepreneurial experience, having personally started or assisted in the creation of over 40 businesses. I have worked on the administrative staff of and performed research for two universities and have taught adjunct college classes in business management, entrepreneurship, personal finance, communications, and business ethics. I have also traveled the country teaching business-related seminars and have sponsored income opportunity events, as well as educational programs for businesses and consumers. Also, I have written and published on numerous consumer and business topics. In the past, whenever asked to express my opinion on MLM, I openly shared my opinion that they were in fact pyramid schemes in which only a few made money at the expense of many who came away empty. My outlook changed when in 1994 and 1995 I was approached by influential friends who insisted I was wrong and should take a more objective look at the MLM industry. They provided me with much information for my review. Being both an entrepreneur by nature and a researcher by training and experience, I was curious and considered proving for myself once and for all whether or not MLM was a legitimate business—by trying it myself. I would test MLM in the crucible of personal experience. Then I would tell the world the truth, whatever I discovered — positive or negative. As a first step, I went straight to Utah’s Division of Consumer Protection and was furnished a pamphlet published by the Direct Selling Education Foundation (which I have since learned was a cover for the Direct Selling Association, which is financed primarily by the MLM industry and represented heavily in its membership) entitled “Pyramid Schemes: Not What They Seem!” It made the case for multi-level marketing programs as legitimate income opportunities. I was reassured when I noticed it was “prepared in cooperation with the Federal Trade Commission, Washington, D.C.” Then, like a good investigating consumer, I checked with the Better Business Bureau. They supplied me with a BBB flyer entitled “Tips on . . . Multi-level Marketing (How to Tell a Legitimate Opportunity from a Pyramid Scheme.)” Again, the message was similar—reputable MLM’s were distinguished from illegal pyramid schemes, pretty much following the information released by the FTC. Guidelines and checklists were given, but most any MLM program could pass, as long as products and services were offered—in lieu of recruiting people to pay fees for the right to sell products. [In retrospect, I have to say that I and no doubt many others were let down by the very agencies that should have been protecting our interests as consumers. One of the reasons I am donating my time researching and writing on this topic is that I felt compelled to ask: “If one with my background and thoroughness in seeking information was so misled, what could be expected of someone without such background?”] Next, I read Richard Poe’s best-selling book Wave 3: the New Era in Network Marketing11. Having served on the editorial staff of Success Magazine, he seemed credible. I met him personally and learned that he had never been a MLM distributor, but considered himself an objective reporter of the MLM phenomenon—and conveyed a favorable outlook for the industry. That impressed me. I then read numerous articles on MLM and spoke with several MLM participants I knew and trusted, all of whom helped ease my concerns and even led me to see that there was a tremendous future in this industry and that I should get on board. I jumped in with both feet, dropping my other business interests and dedicating more than full time to the enterprise. I carefully selected a company with a sterling reputation (and several “millionaire” distributors on board) and excellent products. According to published income figures, the top level of distributors averaged over $700,000 a year. I figured that with my training, experience, contacts, and determination, I could succeed if anyone could. I did everything my company and upline recommended—subscribed to and tried all the products, recruited many people I knew and sought any referrals I could get, advertised extensively (especially when personal recruiting became unproductive), attended all the training and opportunity meetings, used my best efforts to train and motivate my recruits, and drove my wife crazy with my single-minded dedication to MLM recruiting. But my upline was pleased. My wife began asking questions after a few months of no income. She did not like the changes that were occurring in me as a person—neglecting the family and seeing everyone as a prospect, even our most treasured friends and family members. Fortunately, as a researcher I had kept detailed notes of my experiences and observations with MLM and was still in an investigative mode. Periodically, I reviewed my financial progress—a reality check of what was actually happening. At the end of the year I had financially fallen behind to a significant degree, partly because of all the products I had purchased to maintain artificial qualifying standards (quotas) for ever-higher commission and bonus levels, partly because of all the other expenses of running the operation, and also because of my not having any alternative income during that time. MLM promoters encouraged this dedication, but on seeing my setbacks my upline changed their tune and told me that I should have kept my other work going. The problem was that I could see from the outset that to be successful, such total dedication was required. Also, I wanted to be in a position to speak from personal experience when I would eventually write up my findings about MLM. I was not alone in coming away empty from my participation. Others who joined the program when I did also lost whatever time and money they had invested—including an attorney and persons with solid records of sales and marketing success in other settings. Another facet of MLM fascinated me even more than the money. I discovered a whole range of ethical conflicts that for me—as a former teacher of ethics and one who considers himself to be an honest person—made MLM an unacceptable way of conducting a business. One major ethical problem was watching MLM promoters exploit the social capital of participants for gain—and the resulting contamination of treasured relationships that may have taken a lifetime to build. I finally concluded that deception and greed are primary elements for the success of most MLM programs. The reasons for this finding are outlined in the foregoing report. In fact, before I quit my program after about a year of concentrated effort, though I had achieved “executive” status, I could see clearly what I would have to do to earn sizable commissions (even the $700,000 a year others had achieved). I decided it was simply not worth it. Why? Because I would have to recruit by deceiving hundreds, even thousands of downline distributors (like I had been deceived), into believing they too could achieve what I had achieved. For me to receive that much money, thousands would have to lose their investment, since the money would have to come from somewhere. It was truly a bogus business opportunity. Also, I would have to continue to insist that MLM programs were not pyramid schemes (after all, the FTC and the BBB had implied in their information pieces that they were not)—as long as legitimate products and services were sold and people were not merely recruited to pay for sales rights. Upon learning of my dissatisfaction, many other MLM promoters tried to recruit me into their programs. But I felt my time and resources were too valuable to learn everything by experience. My primary interest by this time was in presenting a good overview of the generic problems of MLM’s, which led to extensive telephone surveys and other research about the pros and cons of this unique business model. Out of all this research came this and other analytical papers, a book and involvement in a consumer awareness movement focused on PPS’s. Some critics of my analysis see my exposé on MLM resulting from a “sour grapes” attitude after failing at MLM. I can only respond that (1) I was not a “failure” since I rose to the top 1% of all distributors who had tried this program, and (2) consumers may be fortunate that (unlike millions of others who quit MLM with feelings of failure) I had the determination to tell the truth and to publish what I have learned. This is because I was fulfilling my initial pledge to myself to make public whatever I learned from my research and experiences with MLM. Others have asked why I have chosen to focus so much of my energies and resources for a cause for which I will receive little or no gain. My answer is that when I gain unique insights on an inequity or injustice in society, I feel a moral imperative to share what I know. This report is an effort to do so. Also, I believe that these insights could not have come about without a careful look from the inside of these organizations as a practicing distributor. Had a government investigator with my unique background gone undercover as a MLM distributor for a year or more, he/she would probably have come up with similar conclusions.