Posted 20 January 2015
Pershing Square Capital Management, whose president, Bill Ackman, is urging government regulators to shut down Herbalife, has produced a brilliant 6-minute video explaining why many multilevel companies (MLMs) should be considered pyramid schemes. The video states:
Most companies that sell products make money by selling them to consumers. But many MLMs make money by selling overpriced, difficult to sell products to their own distributors who are typically aspiring entrepreneurs hoping to fill the business. To qualify as a distributor, you must buy a minimum amount of product from the company. This can cost you hundreds or even thousands of dollars. Once you purchase enough of the product to qualify for commissions, you will soon realize it is difficult to resell the inventory you purchased and generate retail profits. At that point, you will learn that recruiting others to become a distributor is the only way to have a chance of recouping the money you invested. You will likely be pushed by the distributor who recruited you to convince others to buy in and become distributors. . . . This constant emphasis on recruiting new distributors is a telltale sign you’re dealing with a pyramid scheme.