Ep. 9 - A Pyramid Scheme by Any Other Name...is Still a Pyramid Scheme
Links for Robert and Melissa:
Robert’s book: Ponzinomics
Robert’s Website: Pyramid Scheme Alert
Melissa’s Podcast: The Teacher As...Podcast
Transcript:
Melissa Milner 0:00
Welcome to Ponzinomics 101. I'm Melissa Milner. I'm a 30 year veteran teacher and host of The Teacher As... podcast.
Robert FitzPatrick 0:22
And I'm Robert FitzPatrick, author of the book Ponzinomics: the Untold Story of Multi Level Marketing.
Melissa Milner 0:30
We are co hosting Ponzinomics 101, a monthly educational podcast for anyone who would like to learn more about multilevel marketing, and why it should be avoided.
Robert FitzPatrick 0:40
We hope this podcast will be a resource for teachers and parents and provide valuable information that is not currently being taught in our public schools, colleges and universities. The best defense is awareness, be informed think, question everything. And keep your mind engaged.
Melissa Milner 1:04
Robert, this is your episode, and we want to hear why you even got started hating MLMs.
Robert FitzPatrick 1:16
Right. Actually a lot of things that I do, I guess hate in life, but MLM is not something I hate. But I am I guess, insulted, offended, outraged by its existence, and that nothing, you know, effective has been done to set it right. And...
Melissa Milner 1:38
That's a nice way...that's a nice way to say it.
Robert FitzPatrick 1:42
But I don't seethe with anger about it. I am angry. But I don't seethe. And I don't blame either. I don't have any body in particular, that I really focus my feelings about all of this on. It's a phenomenon. It's part of something going on in America that I hope we can, you know, change the course of. That's what I and there are many other things in life in America and the world like that. But this is one that really, you know, insinuates itself into our lives into our homes into our families. That's the insidious and terribly cancerous character of it. And so.
Melissa Milner 2:25
So you didn't get introduced by being in an MLM per se. You were in a scam, called the Airplane Game, right?
Robert FitzPatrick 2:36
Well, I think properly and this in a way, when I look back on it, it was a folly that I fell into, but a fortuitous folly, because it was a pure pyramid scheme. Purer that is in the sense of it was less disguised. It was disguised. But it wasn't disguised commercially, as a business, the way MLM is. That's a powerful disguise to claim you are a business.
Melissa Milner 3:09
Yeah.
Robert FitzPatrick 3:09
Because in America, and the world, mostly how we live is through business. That's how we earn living, most of us obtain goods and services and so on. So we accept business as a essentially a benign and important critical institution in our society, that we literally couldn't live without it. So if something says it's a business, you know, we tend to give it the benefit, not just the benefit of the doubt, we tend to embrace it as something that could offer us value. So pyramid scheme that I was in didn't do that. It only focused on the story. Now, MLM has this story built into it, too. But it also has that business identity. But the Airplane Game, and that's was what it was called then. This was in the mid to late 1980s. I learned later the Airplane Game had been operating in the 70s, too. So it's been around for 50 years or more, but I encountered it in the 1980s. I didn't go look for it. It came looking for me as all schemes like this do. The Airplane Game is a version of a pyramid scheme. Multilevel marketing is another version of a pyramid scheme. It had the structure you had to pay money to join it. It had an endless chain. So you know, when you joined it, you got on a chain and then you recruited people and so on. You made money by recruiting people. That's the way it was done. So that and then there was the final fourth characteristic of all pyramid schemes, the money transfer. The new people whose... came in their money went to the earlier people who were in before them. So in order for everybody to get their money, as, as the scheme promises, it would have to go on forever, and ever and ever. So no end, it had to be eternal, of course, not only eternal, but there had to be an infinite number of people to join too. Well, you know, as we know, eternity and infinity are theological, metaphysical concepts that don't exist in day to day life. So it was a delusional fraud if you had to accept the delusion of the endless chain. But somehow they convince us and so many others that it wasn't a delusion, it was actually reality.
Melissa Milner 6:01
Did a friend get you into it? Or...
Robert FitzPatrick 6:04
Of course, yes. Yeah, yeah. Friend, a friend. And that's why everybody got in somebody you knew, and trusted, and maybe loved, who knows, you know, it was that way. And then the people who so it had an affinity to it, everybody that got in was kind of the same types. You know, we're a lot of us had newer cars, we were we had mostly white collar jobs. Many of us had college educations. And we all had credit card debt.
Melissa Milner 6:35
It was the 80s.
Robert FitzPatrick 6:38
Yes. And that's right, it was the 80s, when, you know, making money was sort of the highest order of living. So then so here comes this scheme, that tells us that actually, all these financial troubles we're having are unnecessary. We could we could escape them all. Because the reason we have them is kind of bad thinking, you know, bad thinking. We hadn't opened our minds to the universal principles of the law of attraction, and the fact that the universe wants everyone to be happy and prosperous. Okay, that sounds pretty good. I like that. Now, this system has come about that is now that's what we're all gathered here for, to show you a way to avail yourself of this universal benevolence, this abundance that's out there, there's plenty for everybody. The only reason we're having troubles is because we think in terms of scarcity, we think in terms of competition, instead of cooperation. And for that reason, now many of us are, you know, suffering all these pressures and financial problems that we have. So how did the system work? Now? Is that a true could this be true? Okay. We know it's true, because look, somebody right here that we know is going to tell us about it. And so this person comes to the front of the room and says, you know, I had $50,000 of credit card debt facing me my child needed dental work, and I couldn't afford it, and so on. It's all paid off now. It's all and by the way out front, BMW brand new. And so Oh, my God, and she's your he and depending on the meeting didn't matter, is beaming, just exuding a kind of happiness and fulfillment and satisfaction that I don't have. So how did they do this? And their future look great. So what did they do? So there's the evidence, and then others got up and said the same thing. So now we have a statement of philosophical description of our problems are really because we caused them ourselves. Okay. And if we would just shift our thinking, we could get out of this and, and find a life of fulfillment and abundance.
Melissa Milner 9:00
It sounds like the beginnings of meetings when you're joining, but you don't know you're joining a cult, but it sounds very culty.
Robert FitzPatrick 9:08
It is absolutely a cult because it's one of the first out if you would define a cult, it's a it's a delusional or non rational belief system, you know, and that's what this was, we were being introduced into a, a delusional belief system backed by a scheme that included a scheme and the scheme involved not one guru or leader but a plan. And the plan was this pyramid scheme and it was a four level pyramid scheme, one person to below four below them and then eight at the bottom, that call that the airplane game, because that gave it a theatrical fun quality to it. So we heard this uplifting philosophical metaphysical description. We saw the testimonials we heard them, have them It works, people had real money 10s of 1000s of dollars of real money. Now we needed the plan. But the plan after having all these wonderful lofty thoughts couldn't sound too mercenary or mundane or kind of slimy. It had to be sounded fun. Okay, so it's called the game, the Airplane Game, the person at the top is a pilot, and the two below them are co pilots. The four below them are the crew. And the eight at the bottom are the passengers. So the passengers are each going to put in $1,500. That's what it cost. And when they do when all eight seats are filled, the pilot gets the money. Okay, the pilot now is out, he can come back in or she can come back anytime they want. Redo it also, but they would have to come in at the bottom. But now so the pilot is out. So now if you would think of you've got two, and four, and eight, just cut it in half, the two co pilots now become pilots. Right? The four crew now become two co pilots each. And the eight passengers now become four through each. Now they have each two planes with eight empty seats, and each one they need to go find 16 new people, when they do those two pilots that get their $12,000. Remember, this is 1980s money. It's crazy. Now, there are people who got in, went through it 3, 4, 5 times. They may 50...1 person I knew made $100,000 In a few weeks time.
Melissa Milner 11:54
Wow.
Robert FitzPatrick 11:55
So this is pretty mesmerizing.
Melissa Milner 11:57
I could imagine someone saying well, it's not a pyramid scheme, because the person on the top ends up having to start all over again. So it can't be a pyramid scheme. I'm sure... I'm sure people could argue that.
Robert FitzPatrick 12:09
Well, they people said that. But here was the best argument to give you an idea of how people can be in denial about a pyramid scheme, because what I've just described as a perfect pyramid scheme, and this chain pay to play us recruit money transfer. They're all as Yeah, because they said wait a minute pyramid scheme, you have to pay money. We're not paying any money for this. Oh, no, no, this is a gift. You're going to give, you're not going to pay at nobody is going to be rewarded for having recruited they will receive gifts from the recruits.
Melissa Milner 12:45
So semantics, basically,
Robert FitzPatrick 12:46
its semantics, but it's a cover story. So we're talking about MLM. Remember, MLM says, not a pyramid scheme. I didn't pay anything. I touch paid $400 Oh, no, I got products for that.
Melissa Milner 13:01
That was an investment.
Robert FitzPatrick 13:03
Yes. And that was actually visit business opportunity. So but how do you make money? Well, I can sell the product, do you sell it? Well, I didn't actually sell it. But I did recruit other people and they bought it. So it's kind of like selling. So that's the same kind of rationale going on here. But here was the biggest thing. So we had the delusional belief system that included that a pyramid scheme, an endless chain, requiring unlimited infinite numbers of people and an eternal expansion forever and ever. Amen. We had to accept that. Okay. And we did, because money got flashed in front of our eyes. People we knew and respected, said it worked. And they got the money and they're spending the money. And it's made them happy. And somebody else got up and said, it's not a pyramid scheme. And it's not illegal, because this is all voluntary, and it's all gifts. We're just giving and nobody can tell you can't give money. And nobody can tell you can't receive money by people who want to give it to you. So there was our legal cover story, our legal rationale, and on we plunged and 1000s and 1000s of people where I lived in South Florida joined enthusiastically. And hope was in the air because now my credit card debt was going to go away. My kids could get that dental work done. My son is going to go to the best college. I have no more financial worries ever. And I'm telling you, nobody has lived. All of us live. We don't know it. But we all live with this cloud of financial burden over us. If it's not that you don't have enough money to pay your bills. Now you wonder what about my old age? Well, I have enough money. What if I get sick What if I lose my job? Everybody walks around with this in Imagine it not being there and all prosperity, fulfillment, it's all there for you. Well, again, remember you've you've banished that thought. So you have put that thought away for for now, you are walking around in a cloud. And believe me, euphoria was in the air.
Robert FitzPatrick 15:20
Now here is again, the classic brainwashed person.
Melissa Milner 15:24
Yeah.
Robert FitzPatrick 15:25
And we've seen them in MLM the person who's got this glint in their eye, who they know they're going to be a millionaire soon, you don't know you poor loser, but they can invite you in, and you could be happy to. And so we, in the Airplane Game, floated around like this, recruiting our friends, we weren't had a secret plan, we had beaten the system, and money was flowing, millions of dollars, all in cash, were being exchanged at meetings. And then the charts were showing how each, you know, airplane, this one filled up, it's now split into two. Now we have 20, we have 15, planes and, and 1000s of people and they're meeting in homes all over the place. So this was a brief. This was me in the middle of this. It didn't even know what a pyramid scheme was. Actually, I'd heard about them, I really didn't know, I kind of had these beliefs, which we now call a new age, this idea of a kind of benevolent universe, the idea that you can sort of shift your thinking and change reality. I sort of had that as a vague notion, I'd certainly heard it. I heard it from you know, Tony Robbins, I heard it from all kinds of motivational speakers and business boosters, who taught in sales courses that I had been involved in talking about, the successful salesperson is just the person who has the right attitude. It's not skill or talent, anybody could do this, that person's conquered, you know, and learned the secrets from the mass. I heard all that. So I kinda was inclined to it did not say sounds like utter nonsense. Ya know? I never thought to say that. There were people that did, but not very many, most people. It sounded so good.
Robert FitzPatrick 17:20
You know, the corollary, or the let's say the, the corresponding statement too good to be true. Well, there's also, it's so good. It can't be turned down. Yeah, that's kind of where we were, you know, this sounds too good to be true. But it is. It also sounded so good. You will be crazy not to try it out. So off it went. And so it ran for some time, not very long. Before. Wow. Who Who broke it up? Mathematicians, economists. No, the Sheriff's Department, the County Sheriff's Department announced that it was a pyramid scheme. And anybody who's in it is breaking the law. Okay, so this came out in the newspaper. Well, we, we looked at that and said that can't be true. us criminals. No, they're the unenlightened ones were the were the enlightened people. Were doing good. Then, a week later, newspaper article, the sheriff's office had raided some homes, arrested people put them in handcuffs.
Melissa Milner 18:24
Wow.
Robert FitzPatrick 18:26
So after that, now panic followed. And and, and terrible self doubt and fear. And suddenly, is there a record? And are they going to trace it to me? Are we going to get arrested this, you know, paranoia now filled the void, where we had euphoria, without paranoia. And people who were bonding with because we're all part of a community. Anyway, to hear from that person. Again, they might not phones might be cat who knows what's going on. So in this way, ignominiously, the airplane game crashed and burned. And I was in the middle of that. And so I stood there and asked myself What in the world happened here? Clearly, I then we're in the midst of the newspapers, reality Dawn, there's no such thing as infinity. There's no such thing as an unlimited number of people. I did the math eight, each one that becomes a pilot needs eight, eight times eight times eight. Well, it didn't take very long for this to surpass the population of the earth. It couldn't it was destined to collapse at some point. And so then I did further math on it, and saw that if you freeze it at any given moment, however many 10,000 12,000 there will always be 90% of the people in the copilot crew and passenger levels. So at any given time 90% are going to lose at most about 10% could get their money. Now in MLM gets about one and 1000. That's the leverage of an MLM. But the point is sort of the same, the vast majority are simply giving their money to a tiny number, and it won't keep going. And if it does keep going, the loss was still be the same ratio. In other words, if the police had not come, it would have still resulted in 90% of the people losing their money, no matter what.
Robert FitzPatrick 20:30
That's all experience. I said, I've got to try to figure this out. I got where did this even come from? And what were who invented this thing? And why did we all fall for it? And why didn't? How did we turn on each other, and start recruiting people that we used to consider colleagues, friends, intimate, you know, people that we trusted and confided in and suddenly they became prospects? They became passengers for our plane, and so on. Yeah. And we all kind of went insane. So what was that all about? What happened to our values are integrity, and so on? These were the questions that I began to address, which led to eventually writing false prophets, you know, which then got me in further and further into court cases and so on, talking about pyramid schemes, but he was the maybe is the the greater revelation about all this, Melissa is, the airplane game was not just one thing. There have been scores and scores and scores of these same scheme, exactly the same 1,2,4,8 the eight at the bottom...
Melissa Milner 21:49
Is the Dinner Party one, the...
Robert FitzPatrick 21:51
Dinner party was exactly the same thing. And they've been different names La Familia, Corporate Ladder. I mean, it goes on and on. Women Helping Women, but exactly the same. So now here's my experience back in the late 80s... Airplane Game, fast forward, not fast forward, but we'll go fast. 20 years later, Oprah Winfrey Show is talking about a terrible pyramid scheme is sweeping the country. It's called Women Helping Women. It's attacking, and it's deluding women and, and all these women, and they put in $1,500, and then they're gonna get $12,000. And it's all based on a pyramid scheme.
Melissa Milner 22:33
It's even the same entry money, it's the same amount.
Robert FitzPatrick 22:36
Yeah. So, there were some that ran with $50, some that ran with $5,000. That depends on the level of income of the of the people being targeted for this. So it suddenly hit me then too about multi level marketing, because by now I've been writing about multi level marketing. So one person joins Herbalife and another person joins Amway and another Joy's new skin and other joints this or that doesn't really matter. And that there's somebody out there saying, you know, some of these schemes are pyramid schemes. And they go on and describe how they can be a pyramid scheme. And each person says, well, that's not the scheme I'm in mind is sells a different product of mine. Mine is this name, not that name, a minus a different leader and different that. And, and, by the way, it can't be a pyramid scheme, because there's a product involved. So they have the whole rationale. And it's been going for 10 years, and so on, and has to be legitimate. So they've got this huge bank of rationalizations, but the biggest rationalization is that there are hundreds of them. And the ones that have been prosecuted are not the ones I'm in. So I'm in something different.
Robert FitzPatrick 23:52
So I saw suddenly, when I saw these, these various versions of the airplane game are liberating even after the sheriff had come in and arrested people and broke up the airplane game. It didn't matter, because the new schemes had a new name. And people fell for the same story because the story is so alluring, and so seductive, and so utopian and promising. And because people come to these things under pressure, and they need money, and they're looking and they not finding solutions in their regular life, from their jobs, and their professions, and so on. And yet we all believe that the American Dream offers opportunity for all that there's deliverance out there somewhere. I just haven't found it. But I don't doubt that it's out there. So if somebody comes along and says, Well, it is out there, it's right here. And the only reason that you're having these troubles is because you haven't really opened your eyes shifted your thinking. That's what's held you back, not the economy, not the cost of living Not your education or your background, it's just you, what do you think? So it's the same story, we can see the story. It's the same basic structure, the endless chain, you pay, you recruit, the money goes from the last people in to the top people. But the illusion that each one of these is different, and the theatrical names. Now, as I said, we you can't just have, you know, hey, when at 12,000 got those and give you 12,000 hours, skin over here, show you how to do it, you recruit two, and they recruit four, and then they recruit eight, you get their money. Yeah, we'll call it the money pyramid scheme game, you know, you got to trick these people, you got to tell them this, but it works. No, you can't do that, obviously, can't ever get anybody and when that you have to make it up and make it sound appealing, attractive, benign, and fun.
Melissa Milner 25:54
Or... I mean Women Helping Women, it's, it's now you're doing this amazing benefit.
Melissa Milner 25:59
It's a social service, it's actually something good for humanity. And, and it's a way to express your highest values. Yeah, so all of that can be built into the narrative around around these schemes. And, but the point that I'm making is that in the airplane game, they had to use these little fun game things. In multilevel marketing, the same thing is going on, for example, they create these levels, and they give them titles. You're now a manager. You're an executive manager. Okay, you're a vice president. You're a director. You're an executive director, and so on. These are silly little titles, because actually, nobody in there has management responsibility for anything. All you do is recruit people.
Melissa Milner 26:49
Right. Right.
Robert FitzPatrick 26:50
That's all they do.
Melissa Milner 26:52
Or you're a diamond.
Robert FitzPatrick 26:53
Or you're a diamond. You're an emerald. Yeah, you're Yes, whatever that might be. But these are theatrical names that bear have no actual bearing what you do, you're not managing, you don't have corporate responsibility. No, it's so it's not really a business. But that's instead of making it a fun game. It has given these fake business titles, these fake business names to essentially a naked pyramid scheme. Again, pyramid scheme, what is it? endless chain? Hey, you have to pay it's not chained letter. Just you know, good luck. You have to pay, and you have to recruit if you don't recruit no money for you? And then how does you get the money? The money is transferred from the last ones in up to the earlier ones and over and over and over again. That's, that's the bare essentials.
Robert FitzPatrick 27:51
Why is a pyramid scheme so bad? Well, because most of the people have to be in the bottom so they can never get their money. It starts out with a big lie that everybody can make their money. It's unsustainable. It will either totally crash or it will continually hemorrhage people who find I'm not making money. I'm not they quit, they get replaced. That's how MLM that's what's that's what Yeah, so in MLM the scheme doesn't totally collapsed. And a lot of people that's the other reason when they say, it'd be a pyramid scheme has been operating for 10 years. If it was a pyramid scheme, it would have collapsed by now. Actually, it's been collapsing since day one, add up all the people that ever joined that particular MLM. Let's say it's been around 10 years. So let's get the names of everybody who was in it for the last 10 years. Now, what percentage of them got their money? And I said in the airplane game, I did the math and figured it out. It wasn't that complicated, that about nine to 10% could get their money ideally, and 89 to 90 some percent would always lose didn't matter if it ran for a year, 100 years...
Melissa Milner 29:03
And you know, I mean to be very specific our... my upline in Amway there was my direct upline who was successful and then there was their direct upline who was really successful. And all the people under them in a matter of months, they didn't have they didn't have their downline anymore. I mean, just bleeding, bleeding downline. So like, even if you get there, let's say you do get.
Melissa Milner 29:33
Yeah.
Melissa Milner 29:34
You got to work and work to stay there. And you're you can't...people leave because they're not making money. The people under you aren't making money and they leave and then you don't have your your status anymore. It's awful,
Robert FitzPatrick 29:48
Right? So it's a state of what I've called continuous collapse.
Robert FitzPatrick 29:53
Yeah.
Robert FitzPatrick 29:54
The scheme itself, just like the Airplane Game in a way the Airplane Game never went away. It just changed names.
Robert FitzPatrick 30:02
It morphed.
Robert FitzPatrick 30:03
It morphed, you know, and it moved around. And it's been all over the world to the moral of the story, or the message of the story of the airplane game is that it's a kind of a metaphor for multi level marketing. It's the same as multilevel marketing. It just takes the product away. So that strips it of the business disguise, which is very, it's the best disguise you can give. I have read in centuries past, if a fraud disguised itself as a religious program, you could almost get away with it. And not to get too far into that. But, you know, we know that indulgences were sold. Right indulgences. So that that people would sell, sell you an indulgence? What's an indulgence, it'll cut time off from where the time you're going to spend in Purgatory. This was religious fraud, but almost anybody could get away with it because it was cast as a religious program. And and in America, and most of the world, if you can get the world to think that your scam is a business, you get away with it for a long, long time. And even if you get prosecuted, it may decide they may determine Well, that was just an unfair business. And that's kind of what happens with multilevel marketing. The government doesn't say, You committed fraud, you deliberately deceive people, you harm them, you took their money, you really harmed them, some of these people, their lives have been ruined, you're going to jail for that. You're going to go on trial, for an end. Rarely that happens. Occasionally it happens. Bernie Madoff went to prison for the rest of his life. You know, he's he died in prison. And there have been a few multi level marketing people that have also been jailed for their roles. But mostly, multi level marketing is only prosecuted as an unfair and deceptive trade practice. Nobody goes to jail. Yeah. So when the Federal Trade Commission prosecuted Herbalife, they made them pay $200 million. But the money wasn't out of anybody's pocket. That was the corporate money. The CEO didn't go to jail. Nothing happened, nobody went to jail. So as a consequence, even if a multilevel marketing company is shut down, it only morphs and the leaders scatter out, either start up new MLMs or whatever. So all the more reason why, you know, or the consumer at an individual person if you can cut through all that disguise, and false narrative and utopian talk.
Melissa Milner 32:49
Now it's coaching and coaches, and it's getting into that.
Robert FitzPatrick 32:53
Yeah.
Melissa Milner 32:54
Awful, awful.
Robert FitzPatrick 32:56
Yeah. So that's, to me the message of the airplane game and why I said at the beginning, as crazy as it was, for me, for the work that I have done since then, writing books, setting up the website, the first anti MLM website called Pyramid Scheme Alert, which was now 22 years ago, that it was sent out, and then helping with some of court cases, and, and so on, and helping other people who are writing about this or talking about it, you know, so that information gets shared and developed all along the way. And a kind of network of people has developed into a full blown consumer movement now, but I've had a, I had a great opportunity to see it in its pure form, pyramid scheme without that business disguise. And that's the hardest thing to cut through. Is that business disguised as long as you keep calling MLM a business in an industry, as long as you keep calling their payments, commissions and bonuses. And as long as you keep calling those phony products, sales, rather than pay to play, then it's very hard to see what's going on. You're using language of voluntary contracts of exchange of value using that language to describe a pyramid scheme. And of course, the two have nothing to do with each other. You should be talking about pay to play, recruiting mandates, swindle, you should be talking about money transfer, and so on and not profit, commission, bonus, sales...and so on.
Robert FitzPatrick 34:33
Even recruiting is not a valid word because you've really, you've really lured somebody into a trap that's really not recruiting. You know, it's perfectly legitimate recruit somebody but it's not it's not legitimate to lower somebody into a financial trap. So you know, the whole language has to has to be changed and is changing, people are changing and were you seeing the word scam and and swindle Yeah, and call bolt and pyramid scheme used much more freely now to describe these things, but still we know that officially, the the government, the courts do not treat multilevel marketing per se, as illegal or fraudulent. And so people have to be careful because the government's sort of not on your side here. You know, the truth is the truth, but the truth is not backed up and validated by the law at this point. It may come... it may come, but not yet. Now, I think the Airplane Game is, as I say, kind of a, a metaphor for multilevel marketing. In my book, False Prophets, I called it a cousin to multi level marketing, but fundamentally, they are from the same gene pool, and really, you know, do the same... do the same damage.
Melissa Milner 35:50
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