Multilevel marketing, an unwinnable lottery: how MLMs illegally target women and minorities using deceptive and predatory recruitment practices and the need for specific and expanded legal protections

• Author: Taylor Walsh
• Position: Esq., California Western School of Law
• Pages: 179-200

MULTILEVEL MARKETING, AN UNWINNABLE LOTTERY:

HOW MLMS ILLEGALLY TARGET WOMEN AND

MINORITIES USING DECEPTIVE AND PREDATORY

RECRUITMENT PRACTICES AND THE NEED FOR SPECIFIC

AND EXPANDED LEGAL PROTECTIONS

TAYLOR WALSH*

ABSTRACT

This Note details the rise of the modern multilevel marketing companies’

(MLMs) business model and explores how MLMs have become synonymous

with deceptive recruiting practices that target and exploit women and minor-

ities. To understand the rise of the “modern MLM”—defined by this Note as

direct selling companies incorporated after 1979—this Note begins with a dis-

cussion of the seminal 1979 Amway decision and goes on to examine the cur-

rent legal theories behind most states’ criminalization of pyramid schemes

as unwinnable lotteries. Further, it analyzes the notable exclusion of MLMs

from current criminal statutory schemes. Based on that foundation, this Note

posits modern MLMs that engage in deceptive and predatory recruiting prac-

tices: (1) disproportionately target women and minorities, resulting in the

majority of recruits experiencing negative social, mental, and financial ramifi-

cations; and (2) create an illegal, unwinnable lottery system by failing to

adequately disclose to recruits material information about average income at

the onset of employment. The MLMs: Mary Kay, LuLaRoe, and Herbalife

National are used as illustrative case studies of the tactics MLMs use to ille-

gally target women and minorities. This Note then offers a proposed amend-

ment to state statutes like California’s that do not criminalize MLMs by

expanding the statutory language to explicitly address the predatory and de-

ceptive nature of MLM recruiting, which creates an illegal, unwinnable lot-

tery. Finally, this Note explores the danger posed to women and minorities by

the Direct Selling Association’s policy priorities and asserts its policies only

exacerbate and strengthen the disproportionately negative impact felt by

women and minorities nationally.

I. AN EXCITING NEW BUSINESS OPPORTUNITY OR ILLEGAL GAMBLING? . . . 182

II. BRING A FRIEND, WE’LL GET TOGETHER, HAVE A FEW LAUGHS.. . . . . . . 187

A. MARY KAY ........................................ 187

B. LULAROE......................................... 189

C. HERBALIFE ........................................ 191

* Taylor Walsh, Esq., California Western School of Law. © 2022, Taylor Walsh.

179

III. JUST LIKE THE POWERBALL, YOU CAN’T WIN IF YOU DON’T PLAY . . . . 192

IV. PYRAMID SCHEMES, MLMS, AND “REAL DIRECT SELLERS,” OH MY! . . . 195

CONCLUSION ............................................... 199

Hey girl, how are you? I know we haven’t spoken in a while, but I saw

your latest [insert social media platform] post and I just wanted to say

you look amazing! You have always had such great [insert attribute

connected to multilevel marketing product], have you ever thought

about opening your own [insert multilevel product] business? I work

for myself selling [insert multilevel marketing company name], and I

am thriving! I’m actually looking for someone to model [insert multi-

level marketing product] for me at a little get-together I’m having for

some of my best clients. Would you mind helping me out? I would

love to catch up and there would even be some free [insert specific

multilevel product type] in it for your trouble! Let me know soon,

can’t wait to hear from you.

1

See generally Shelby Heinrich, 14 Times People Did The Lord’s Work And Called MLM “Boss

Babes” On Their BS, BUZZFEED (Jan. 23, 2022, 8:46 PM), https://perma.cc/85XX-3NPW.

The above message is a trap. A simulated example—derived from real-life

messages—used to target women and minorities with the simple promise of a

good time and free stuff.

2

But the real reason for these kinds of subliminal and

emotionally manipulative messages is far more sinister. To quote the renowned

American sculptor and video artist Richard Serra, “[i]f something is free, you’re

the product.”

3

Soumik Roy, Facebook: If something is free, ‘you’ are the product, TECH HQ DIGITAL

MARKETING (Apr. 9, 2018, 9:24 AM), https://perma.cc/6B49-8LN6.

Messages like the one modeled above are the preferred recruiting

method of modern Multilevel Marketing companies (MLMs). Capitalizing on

women and minorities’ pre-existing social circles is a tried-and-true recruitment

tactic that lures in new MLM participants under the guise of community, friend-

ship, or “sisterhood.”

4

See Bridget Read, Hey, Hun! In women’s joblessness, multi-level marketers saw opportunity., CUT

(Feb. 3, 2021, 6:00 AM), https://perma.cc/3Y5U-W82N.

MLMs adapt this formula to target minorities by simply

adjusting the language to appeal to specific minority communities’ cultural

norms. Most MLMs train their participants—often called distributors or sellers—

to utilize their online presence and in-person social connections to recruit other

women and minorities for money.

5

These MLMs are elaborate pyramid schemes

hiding in plain sight. Specifically, most MLMs are, “[p]urported income opportu-

nit[ies], in which persons recruited into a company-sponsored program make

ongoing purchases of products and services and are incentivized to recruit others

1.

2. Id.

3.

4.

5. This Note uses participant, distributor, and seller to describe MLMs lower tier or entry level

members.

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