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MLM's, They May Be Legal, But Are They KOSHER?

MLM's, They May Be Legal, But Are They KOSHER?

By: Rabbi Eli Teitelbaum

Since many people don't know much about Multilevel Marketing (also known as MLM), let's explain how they work. A legal pyramid business also known as Multilevel Marketing (MLM) works as follows. The company sells you merchandise as well as gives you distribution rights to sell it to others who in turn also become distributors for this product. They in turn sell it to others who sell it to others. The more of the product that gets sold by the people under you (called your down line), the more commission you can earn. Sounds good doesn't it! Making lots of money without having to work too hard. It's a great way to make a living, isn't it? Then why doesn't the whole world open up such businesses and life would be very simple and everyone would make an easy living? Well, let's examine it more closely.

Make believe you sell a product to only ten people and each of these ten people sell it to ten more. In only one step of the chain we already have 100 people who bought the product and each of them will now sell it to ten others. Now let's continue with the chain as these 100 sell it to only ten each and we already have 1,000 new distributors and buyers for our product and we have only gone down the chain three steps. Let's continue with our great business and see how much further it can go. Next we get 10,000, then 100,000, then 1,000,000, then 10,000,000, then 100,000,000, then 1,000,000,000, then 10,000,000,000. Notice that we've only gone down ten steps of the chain and we've got quite an astronomical figure. Let's try and picture it and see why it's called a pyramid.


We'd better stop now since there are not that many people in the world unless you also have a way of selling it to the people on the moon, Mars and Jupiter. In truth, we all know that the chain will come to an end much before it ever reaches the entire world. That's because most people are simply not interested in the deal and many that did buy in will soon realize its not for them and unfortunately will remain holding the bag. But ,for argument's sake, let's say the product is so hot and the commissions so great that everyone in the world is going to buy in.

Fine, you say. As long as everyone in the world bought the product and is happy with it and also made a sizable income in bonus checks for selling it to others, then what can be so bad?

Well, then, let's add just two more little details to our MLM business deal and see what happens. Lets make it so that anyone who wants to be a distributor and earn commission sales must first buy $750 worth of jewelry plus another $250 worth of sales material, such as catalogues, tapes etc. which will help him sell the product. You only start earning your commission check when those below you in the chain sell it to those below them. When this happens you will receive a big fat commission check for your efforts. Now, let's have another look and see who's making the money? Let's call every progressive link in the chain another layer. All those until the next to the last layer will be getting money. Those toward the top will be making more than the other layers. But what happens to the bottom two layers? All they are left with is the product itself with a $250 sales kit that's worth as much as last week's paper!

Well, what's so bad with that? At least they have some good jewels in their possession, or have they? Let's remember two things. Firstly, none of the people buying these jewels really wanted them. They bought them only so that they could make some money by becoming distributors. Selling a person a product by misleading him is deception isn't it? Secondly, chances are that if the person wanted to buy only the product itself , he could have bought it elsewhere at a much cheaper price.

Well, so what! Some people make and some people lose. That's the way business goes. Not everyone can be a winner!

But let's figure out how many make and how many lose. The first eight layers make money, while the last two layers come out losing (since they can not sell it any further). Simple math will show you that for every one person making money, nine people will lose money. (There are 111,111,111 winners and 11,000,000,000 losers)

Deception in business is not kosher no matter how legal it may be. Nearly all MLM businesses (except those who put the real emphasis on selling a product and not the distributorship) are based on deception of one type or another since all those at the bottom are always losers. While they all are structured differently, they have the same common denominator. The money made by those on top comes from the pockets of those on the bottom.

(Some, like JewelWay work on a binary pyramid. This means that each person gets only two people under him who get two people under them etc.. Before you even get to the thirtieth link in the chain you've run out of all the people in the world, plus all those who will be born in the next fifty years. It should also be noted that many people invest more than $3,000 into JewelWay in order to make bigger commissions)

The Torah requires morals and ethics in business. And the first question one will be asked in the next world will be "Did you conduct your business with honesty?"

There is much deception, lies and misrepresentation going on in these MLM's in order to sucker people into joining the club. Most of them tell people that they will be making incomes that are completely unrealistic. Most of their products are highly over-inflated in price and can be bought elsewhere for much less.

Most of them will deny that they are a pyramid scheme and also try to convince people that there is no such thing as a saturation point since people are born every day. Simple logic and elementary math says that there is a limit to how many distributors there can be for a given product. If there were to be 1,000 jewelry stores in Boro Park, then no one can earn a living. Every neighborhood has a saturation point as to how many stores of that kind can open so that all of them will earn a living. Open too many, and some will inevitably have to close. This is why MLM can not work forever and must come to a dead end. You can't have everyone in the entire world distributing the very same product-it simply makes no sense.

But even if the product they are selling is pizza, which gets eaten up each day and therefore always has a market, how is anyone supposed to make a living if every store and every person sells pizza unless they all sell it to each other?

Every business that one opens has its inherent risks and chances of failure and one must always carefully inspect any business before investing any money. If the business goes bad, one can lose lots of money. Yet the only one who loses this money is you. Hopefully you didn't take anyone under with you. The pyramid marketing business works quite differently. In this business lots of people can get rich but it is at the expense of the many more others at the bottom that wind up losing their investment.

Wouldn't you feel cheated if someone sold you a distributorship, which is worthless? Than why do people try selling it to others? What will happen when it reaches its saturation point?

If all this is common sense and is so simple to understand, then why are so many people being entrapped into it? What motivates people to buy in? The answer is that greed for money can blind even the most intelligent person, so watch out!

Some things you should consider before joining up!

All MLM distributors are sold on the hope of down-line commissions. Recruits hope to recruit others to build "legs," thus creating a pyramid, with pyramid law of averages. Success for everyone is impossible within a multilevel structure. There aren't enough human beings in the world to recruit. Apply the rules of exponential to one hypothetical network (such as JewelWay) in which each recruit only recruits two people, and within 30 generations the entire population of the world has been recruited twice. Actually, the market interested in joining a network is small-perhaps 15% of the population-which leaves late-coming distributors in the dust. Demand is finite, and to overestimate it is catastrophic. An MLM is a human "churning" machine with no "off button". It is guaranteed by design to over-saturate the market with no one noticing. When this inevitable destiny occurs, the only money to be made is not from the product or service but from the losses of people lower down in the organization. MLM sells the fraud of impossible success to others. The product is really a mere diversion from the real profit-making dynamic. It is just an excuse to legitimize the real moneymaking engine.

While almost 50% of MLM representatives make less than $500 a year, the industry depends on hype to the contrary, thus the constant seminars, the group-bonding experiences, the dangling carrot of an obscene income, ever out of reach. They are "motivated" to coerce their friends and family to hear their sales "pitch." This is the way the "dream" is planted and fertilized. Get used to it. (JewelWay clearly states on the back side of its contract that the average distributor that is in it for a year makes approximately $2000 a year. Certainly no big shakes for the amount of time they must put in.)

Where is the money coming from for those at the top? From the sucker at the bottom....as in every pyramid scheme. The important thing is to exploit people while the exploiting is good. There is a blatant appeal to greed and materialism. An appeal to fulfill the "American dream." The product is just a thin cover for what is really a pyramid scheme of exploiting others! They don't like it when you call them a pyramid scheme. But as the saying goes "If it looks like a duck, and it quacks like a duck, and it walks like a duck, then it must be a duck."

Obviously, unbridled greed suspends good judgment. When the eyes gloss over in a materialistic glaze, common sense is a stranger. The moral concessions necessary to be successful in an MLM are difficult to swallow without significant compromise of the conscience. Friends and family will either: a) join and be mad at you later for conning them, or b) resent you now for trying to exploit your relationship with them. Think of the false hopes being generated! Think of the money being lost! I ask you, is this a business for a G-d fearing Jew? Is a Jews money Hefker?

To prove the power of a pyramid, I ask all those receiving this letter to please mail or fax it to two others!

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