The First One is On Us, Second One is On You: Be warned of Leveraged Profit Sharing Programs

Leveraged Profit SharingWhen Zeek Rewards got shut down, the consumers really lacked an understanding of the problems. As I wrote about in the past, this ignorance in the market was largely our fault. Our “self-regulated” industry failed them. The first one is on us. But with this new breed of Leveraged Profit Sharing Programs (“LPSP”), it’s now on you.

Remember Zeek? It’s been close to eight months since they were shut down. If you will recall, Zeek Rewards was nailed by the SEC mainly for operating as a pyramid scheme and for selling unregistered securities i.e. encouraging passive investments, hinting at lucrative returns on the money, etc. Zeek Rewards taught its participants and the entire network marketing industry a very painful lesson: promises of passive return on investment + a network marketing compensation plan = hurricane of pain.

But it’s not an investment…

Sure, I know the counter-argument. People argue that Zeek never “asked for investments.” Instead, they were selling “sample bids” (wink, wink), which led to activity on the website, which led to profit, which led to profit distributions to the investors / distributors. Curiously though, the vast, overwhelming, ridiculous majority of those sample bids (99%+) were never used, which means the program was just cycling money from older investors to newer ones. While I know the counter-argument, it’s flat out silly. And those of us in the industry, we knew it and we said nothing. We let Zeek take advantage of the credibility we all work hard to create.

I’m getting to the point…

Zeek Rewards was like cocaine for a number of the net winners. They’re now hooked on the high. They want more. As the air in Zeek is deflated, reality is starting to sink in for people: Zeek Rewards is never coming back. With that in mind, it has led to the next generation of high yield investment MLM. I’m referring to these sorts of programs in the industry as “Leveraged Profit Sharing” programs. High Yield Investment Programs, or HYIPs, is a phrase commonly used; however, it’s easy for LPSPs to distinguish themselves from HYIPs because there’s “no investment.” I think LPSP is a better fit because it embraces the very terms they promote in their plans: profit sharing. And it’s precisely how they work in practice. The companies leverage the investments made by participants to grow the company. With growth, comes profit. And with profit, comes distributions to the investors i.e. leveraged profit sharing.

The point…

At some point, consumers have to accept responsibility for their financial decisions. Zeek brought painful clarity on the subject. And it was widely publicized. Perhaps I live in a fantasy world, but I think consumers should now know better. When participants are asked to fund the growth of a company by way of buying “samples” for anonymous, no-name customers, and when they’re promised a return based on company profits, they should simply know better! In this Information Age, where information is readily available on computers and cell phones, the excuses are starting to shrink. LPSPs would cease to exist if they lacked support from participants.

Today…

Where there was 1, now there are many. This is just an example. Recently, I’ve heard of “investor co-ops” where people pool money together and invest in multiple LPSPs. It functions sort of like of a mutual fund, but for…other kinds of programs. The companies they were allocating investor dollars: Banners Brokers, Profit Sunrise and GoFun Places. Why would people pool resources and passively invest in these programs? Because…well, you can decide for yourself. And these are just a few. If you get burned in a LPSP, do not blame the consultants or any vendors. Blame yourself. The information is out there. And by the way, the idea of “invest now, get out fast” might come back to bite you. There are a number of net-winners in Zeek that are currently negotiating deals with the receivership to pay back their gains. The other net-winners, the ones that are hoping for the clouds to clear, they’re about to be jack hammered in a whirlwind of litigation.

Think about it.

+Kevin Thompson

  • Steve

    Excellent thought starter, Kevin. I am also amazed at what people are buying into. It is almost cult-like behavior where small armies of people follow the leader and jump from deal to deal. The insiders seem to play it as a “timing” game but the new investors keep joining even after the writing is on the wall. However, could you elaborate on the specifics regarding Profitable Sunrise and Banners Broker? PS has already been hammered by State AGs and International reguatoratory agencies but there has been no law enforcement yet. I find that puzzling. Banners Brokers seems to roll on. Comments?

  • http://www.facebook.com/profile.php?id=100004703082660 Scott Johnson

    Kevin, there always has been and always will be speculators. It is not only the people who are hooked on these programs like a junkie is on cocaine, but tons of “fresh meat” who are new to the MLM industry and will never see your article on this or your obscure blog, Kevin. To take blame for a single case and then blame the consumer for all future cases is ridiculous, irresponsible, and completely NUTS.

    This corrupt industry can’t even “self regulate” (what a joke that concept is) to fix the MLM tool scam issue that has been around for several decades. For those who don’t know, your upline probably makes several times more from selling their tools to their downline than they do from the advertised business. I was speaking with somebody who was instrumental in shutting down FHTM yesterday, and he was telling me about the $5 DVDs that came out several times a year whenever FHTM added or dropped a company they promoted. We all know DVDs can be produced in quantities, with fully loaded costs, for less than $1 each. The remainder is pure profit. Add in the profit from meetings, web sites, books, etc., and you have a full blown scam, of which Amway is the “leader.” Click on my name for more information on that scam.

    Kevin, you won’t recognize these companies and high level distributors who are commiting RICO fraud by cashing in on these scams have been leveraging their tool scams for several decades, why should anyone think the latest leverage trick will go away? Kevin, you are complaining about the pig wearing a different color of lipstick! It is people like YOU Kevin, who claim to be in favor of fixing the ills of the MLM industry AND making a living at it who are at fault. Think about it, a lawyer who wants to put themselves out of business! Kevin, you couldn’t call a spade a spade if it was a shovel whacked upside your head.

    • http://www.themlmattorney.com/about Kevin Thompson

      Yes, Scott, I believe consumers are more than capable of using google. The information is out there regarding the pitfalls of Zeek Rewards and programs like it. It has been a long time since I talked with someone that was unfamiliar with Zeek. At some point, the “little guy” needs to start protecting himself. Expecting the government to solve the problem is short-sighted.

      As for the DVD example, there’s nothing wrong with earning a profit. People pay for the content, not the plastic. I deleted your reference to Amway’s allowance of tool companies. It’s a creepy obsession, Scott. It’s not the main issue affecting the space. Out of all of my clients throughout the years, I have never had a single one (not one) have a field that ran a separate income opportunity on tools. It’s a culture unique to Amway. It’s not something worth discussing on each and every post.

      I do not tolerate personal attacks, Scott. I want your thoughtful insight. Instead, I’m only seeing you resort to the same old tricks, using each post as an opportunity to discuss / attack Amway. It’s distracting and counter-productive. If you want more flexibility, go to one of my competitor’s pages.

      • http://www.facebook.com/profile.php?id=100004703082660 Scott Johnson

        So you honestly believe a new company similar to Zeek is going to say, “We’re just like Zeek, only better,” and therefore a google search will provide results?

        Or they will describe themselves as an LPSP, see your article, and run away? REALLY?

        The way to shake up this industry, and it needs to be shaken up, is for the government to not just to go after all of these little guys, but some of the big ones as well. Expecting the government to do its job is why I pay taxes. Otherwise, do away with these agencies to reduce my taxes and take away this false sense of security.

        I never said there was something wrong with earning a profit, I said a HIDDEN profit that distorts the market is the problem. It’s a creepy obsession that you won’t discuss the facts, Kevin. I think this is a much bigger issue than you are willing to admit publicly. Where do YOU think the DVD and other tool profit goes?

        You’re getting my thoughtful insight, and anything you think is a personal attack is YOU not responding to my thoughtful insights. Instead, I’m only seeing you resort to the same old ignore the thoughtful insight trick, using each post as an opportunity to ignore my thoughtful insights. It’s obvious you don’t care and people are being ripped off as a result. If you want more respect, start being responsive.

        • http://www.themlmattorney.com/about Kevin Thompson

          Yes, I believe consumers are capable of doing research. While the company might not promote itself as a Zeek copy-cat, the field will. And based on those signals, consumers will hit the web and find the information.

          The government IS going after larger companies. Zeek Rewards had over $600M in accounts across the world. But to make its job easier, the government needs a more precise instrument (legislation).

          I’m not ignoring facts, Scott. This article was about LPSPs. It’s not about Amway. As I said in one of my comments, Amway is the ONLY company in the industry that allows a field-driven tool opportunity. MonaVie got away from it. There’s more to the industry than Amway. And this article does not deal with that issue. I understand that you’re quick to anger when people do not share the same obsession. If it bothers you, go somewhere else.

          Regarding your comment about “hidden” profit, it’s not hidden. If there’s no commissionable points associated with a product, people already know: the money goes to the company. FHTM selling $5 DVDs (which is what led to your comment) is not a problem.

          I put this question on another thread that you seem to be ignoring. What is your proposed solution? I see the critics complain, yet there’s not a single one that offers any meaningful ideas. Do you want more disclosure? BTW, while “experts” are talking about Vander Nat’s article written 11 years ago, the FTC is no longer using it.

          • http://www.facebook.com/profile.php?id=100004703082660 Scott Johnson

            The “field” hasn’t figured out the Amway Tool Scam (ATS) “signal” by searching the web. You keep complaining about how I keep bringing up Amway, but Amway is a great example of what I’m talking about. The largest MLM on the planet and most people STILL don’t know virtually all of the net profit is made by less than the 1% double dipping on Amway and ATS profit.

            $600 million in accumulated accounts is peanuts compared to $11 BILLION/year of actual volume. The FTC doesn’t need any additional legislation, they just need to enforce the existing section 5 rules. Lawyers almost always want to make things more complex, which only causes more loopholes. Stop making things more complex and apply the existing rules.

            You have researched EVERY single MLM that exists, and you KNOW every single one of them does not allow profit from upline provided tools? Are you also selling ocean front property in Arizona? As I also said earlier (I think it was “edited” out), it matters little to the distributor whether the upline or company is running the tool scam.

            I am neither angry or obsessed, I merely let the facts speak for themselves. I’m also not bothered, this is fun!

            I believe most people don’t realize how much profit is being made from the tools.

            If I ignored one of your questions, I assure you that you still have a sizeable lead on me, if you’re counting unanswered questions. Besides, why would I miss an opportunity to promote my blog? The answer to your “unanswered” question has been posted there for a VERY long time. Feel free to educate yourself on stoptheamwaytoolscam.wordpress.com.

            The FTC may not be using Vander Nat’s article, but they are using his principles: http://business.ftc.gov/documents/inv08-bottom-line-about-multi-level-marketing-plans, which states, in part, “Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”

            I

          • http://www.facebook.com/profile.php?id=100004703082660 Scott Johnson

            Kevin, what you call “more disclosure” I call not lying. Think about it.

  • Bruce

    It’s all very interesting to see people’s reaction and interpretation of these programs. I
    never ventured into Zeek because nobody could explain it to me in a way I
    understood the reverse auction concept.

    I was jealous when friends were making 5 and 6 figures per month but I was happy when it hit the fan and I was vindicated for my lack of understanding.

    One question I would pose to you Kevin; what would you call it if not an investment? I eat good food and consider it an investment in my health; when I buy advertising I consider it an investment in my business; when I hire an employee I also consider that
    an investment in my company; How does someone talk about doing business without using the word investment?

  • Jason

    What makes Leaf different than Zeeks? I was not in Zeek, but am now in Leaf..
    Thanks, Jason