The History of Multi-Level Marketing

How a Pervasive Past Shapes the Pyramids of Present-Day

Why should I care about how multilevel marketing came to be?

I certainly did not seek out this knowledge when I was first recruited. I didn’t think it would even be relevant since the company I joined had positioned itself as one who broke the mould—and wasn’t a full-fledged “MLM” anyway… I was told (and told others) we were a company comprised of “the best practices of several business models.” It wasn’t until I was long out and had restored my capacity for critical thinking that I realized research would be important for me to do. Learning what I did enabled me to make sense of my experience and made it clear to me that my intuition was correct in stepping back and then stepping out.

The company I worked for, like every other MLM, had, unbeknownst to me, faced multiple run-ins with the law, such as a Class Action Suit for deceptive sales practices and a warning letter by the FTC during the Covid-19 pandemic for implying its products could cure or prevent Covid. Along with many other companies, they were reprimanded for opportunistic recruiting practices during a fragile time in the human collective. These issues, and the fact that problems were intentionally covered up and withheld as relevant information for representatives like myself, make sense within the historical context of Nutralite and Amway. I wish I had known the narrative I heard and regurgitated was just carefully controlled and curated lore. In my opinion, This education is foundational for representing an organization consensually or not.

Step 1 in your multilevel marketing crash course is understanding its origin story.

Chinese Dreams become California Schemes.

While Amway likes to take credit for the advent of Multilevel Marketing, the origin story is pretty comprehensive, convoluted, and corrupt. It begins in 1913 with a man named Carl Rehnborg, who had big dreams of “impressing others, rising in status, and attracting women,” say his early journal entries. At 26, he left home in South Carolina to try and strike gold but arrived too late in Seattle–the gold rush he hoped to strike rich with was over. So Carl ended up dropping out of college to pursue what he believed to be significant opportunities within China. Rehnborg secured a job with an oil company, from which he was terminated for being insubordinate. While he was travelling, though, he observed that Chinese people didn’t drink milk, and like the white saviour he believed himself to be, he presumed the people in China must be nutrient deficient for lacking dairy in their diets. Successfully obtaining a position as an importer of China Carnation milk seemed like his ticket to success… until it turned out that people in China did not like the taste of milk and had a genetic predisposition to lactose intolerance. So that was a bust.

Next, Rehnborg thought he could succeed by bringing Colgate toothpaste to China (rationing, if I can’t save their health, at least I can keep their teeth!). With the political climate changing in China and an impending Civil War, his business plans in China had to be put to bed. After losing everything, including his wife and children, in his quest for fame and fortune, Rehnborg made another pivot and moved to California. In the late 1920s to mid-1930s, Carl Rehnborg jumped on a new craze—vitamin production and sales. Despite a severe lack of scientific evidence, many were swayed into believing ridiculous claims of vitamins’ ability to cure diseases and disorders. While the scientific community backed away, commercialization began in full force, convincing Americans that these pills were approved by traditional wisdom or other cultures (such as China). Forrest C. Shaklee, a former fraudster who had once performed in a medicine show as a “strong man” lifting hollow weights, was already selling alfalfa-based vitamin pills as a door-to-door salesman. Rehnborg followed this trend, launching “The California Vitamin Company,” where he peddled powdered plant concoctions (sounding eerily familiar to other products that would be released around 30 years later). He expanded his product line to include synthetic vitamin-infused candy for children and skin creams, eventually rebranding to “Nutralite.” For over a decade, the Nutralite company failed to thrive, but Rehnborg kept trucking on and on.

By the end of World War II, when, despite the continued lack of scientific evidence, vitamins were in great demand and seen as a staple in American homes—but despite all his efforts and a clear need for what he was peddling, Carl Rehnborg could not seem to catch a break. Nutralite remained virtually unknown as he attempted every possible distribution model, including door-to-door and retail sales. Eventually, he hired a successful Los Angeles-based advertising consultant who advised him to enroll in a course with Dale Carnegie. Carnegie was famous for having published the book, “How to Win Friends and Influence People.” Dale Carnegie, born Carnagey, legally changed the spelling of his last name to match renowned philanthropist Andrew Carnegie, who bore no blood relation but was widely admired for giving hundreds of millions of dollars to charities and public libraries. Dale Carnagies’ name change may be one of history’s first recorded cases of “faking it til you make it” that would later infect the ‘attraction marketing’ social media posts on the Instagram pages of BossBabes across the globe! 

Image: Shutterstock, Dogora Sun

A chance encounter at a Carnegie training between Rehnborg and two gentlemen named William S. Casselberry and Lee Mytinger occurred during a very pivotal time in America. The social climate moved from viewing “salesman” as smarmy and inauthentic to revering salesmanship to the extent that these qualities became integrated within the North American persona, influencing how we live in every facet of life. The tenets of “How to Win Friends and Influence People” involve overhauling one’s personality so profoundly that one can convince oneself that they are helping people despite the apparent personal gain from psychologically manipulative tactics. Historian Richard Huber described Dale Carnagie’s teachings as “a new way of looking at life where people are used for profit.” After meeting Casselberry, a radio show psychologist and Mytinger, a cemetery plot salesman, Rehnborg invited them to partner with his Nutralite company. Suspiciously absent from the Nutralite History Timeline on their website is a period in 1948 when the FDA raided Nutralite and seized inventory, charging them for making false medical claims and deceptively recruiting thousands of people into what the FDA saw as a pyramid scheme. Eventually, the court became sufficiently worn down by the loaded language that Nutralite execs wielded like weapons, and their carefully crafted, charismatic defence enabled them to escape prosecution. 

The strategic, self-interested, loaded language that Nutralite used to deceive the government became the cornerstone of their new way of doing business and their most effective sales and recruitment tool. Former cemetery plot salesman Mytinger brought with him the “selling-hope” mentality that capitalizes on vulnerability and is based upon a 60-80% annual attrition rate. The fascinating history of the funeral industry can be found in a book entitled, “The American Way of Death,” by Jessica Mitford and is recapped in “Ponzinomics” by Robert L. Fitzpatrick. Essentially, the funeral industry was invented, preceded by a not-for-profit model provided at affordable rates through churches, local governments, and the military. The commercialization of this industry, which preys on intrinsic fears, is the same basis from which multilevel marketing was born. Mytinger was duly impressed with the profitability of these invasive and high-pressure sales practices wherein the effective salesperson planted the customers’ needs. Joining forces with his psychologist friend Casselbury, they created “The Plan,” the first multilevel marketing system. They effectively edged Nutralite owner Rehnborg to the nutrition advisor role (despite his lack of actual credentials in the field of nutrition). 

Mytenger and Casselberry pioneered the “endless chain” recruitment model in the mid-1940s, a cornerstone of pyramid schemes, to provide stability and protection for salespeople at the top, who would then model their elite status to their prospective recruits. But even in the infancy of “the Plan,” the men joked about how soon everyone in the world would be part of their company if the “recruit five, who recruits five more” concept was carried out. More than seventy-five years later, author and advocate Robert L. Fitzpatrick would explain that “with each person recruiting just five others, the earth’s population is exceeded after just 13 levels.” It isn’t hard to see how insidious “The Plan” is, yet this is the blueprint by which every multilevel marketing company operates today. The math is consistent, company to company, with the bottom level earning nothing (or losing money) at 96-99%. If you do a little digging, you can see how any MLM compensation plan follows suit. Dispute the too-good-to-be-true nature of the compensation plan; there is potential for those who get in first. We see this initial excitement with all the new MLMs that constantly pop up and the perpetual “Huns” that hop from company to company. We see this when we are mindlessly scrolling Facebook, and our friend is suddenly going live to share their LuluLemon-quality leggings at a fraction of the cost or how ingesting literal dirt cleared up their migraines. We see the idyllic attraction-marketing posts that aim to recruit us, boasting that “there is NO better time to join, the water is warm, jump in.” Only to have these companies dissolve or go quiet after the initial hype wears off. Other companies have utilized the loaded language of their forefathers and say that they aren’t network marketing or multilevel marketing; they are social selling. And their wordplay works because people trust the people they know, and it is the grassroots marketing efforts of our neighbours, teachers, friends, and family members that convince us to take a little leap of faith, preying on our goodwill, with potentially devastating consequences. 

The ground-floor sales reps of Nutrilite are Jay VanAndel and Dick DeVos. They enjoyed tremendous success to the extent that after ten years, they decided to acquire Nutrilite while taking 5,000 of their downline with them as they rebranded as Amway, which stands for “The American Way.”

Then it got Political.

Political connections that Amway founders Jay Van Andel and Dick DeVos had meant that they both had a robust social network that they exploited to their advantage. Jay Van Andel was the head of the Chamber of Commerce, and Dick DeVos was the Finance Chair of the Republican National Committee. Both men were acquiring a ton of money for Republican candidates. After their major legal trial, Amway executives began inserting themselves more and more into politics and even became politicians themselves, giving them a real advantage in running the Amway scheme. When Ronald Reagan became president in 1981, Van Andel and DeVos became frequent Whitehouse guests and were among the most important fundraisers for the Reagan administration. They subsequently were regulars to wine and dine with many heads of state. During one particular dinner, they sat next to then-United States Secretary of State Alexander Haig, who was also Nixon’s former Chief of Staff during the Watergate scandal. Interestingly enough, Alexander Haig ended up becoming an Amway-paid Consultant. 

Despite all the successes the Amway dudes had with inserting themselves into the U.S. government, in 1984, the Canadian government accused Van Andel and DeVos of defrauding the country of Canada through tax evasion. Arrest warrants were issued, and the police considered them two of the most wanted fugitives of this time. Ronald Reagan was in an exciting position, as he was requested to speak at an Amway event, but he knew that DeVos and VanAndel were currently evading Canadian law enforcement. To help make the decision more palatable, they organized an event sponsored by The Chamber of Commerce, for which Van Andel had once been Chair. Ultimately, Reagan decided to oblige, and the day after he gave the State of the Union address to Congress, Reagan flew to the Amway rally in Atlanta, Georgia, and delivered a motivational speech to a crowd of thousands. 

The rally was entitled “Spirit of America: Salute to Free Enterprise.” Reagan praised the loyal Amway followers by saying, “It’s people like you who show us the heart of America is Good.” At this time, the President was also aiming to cut government spending with ideas such as getting rid of the FTC Bureau of Consumer Protection—the people whose job is to assist people from getting ripped off by pyramid schemes. “Reaganomics,” as it was called, also wanted to loosen regulations and lower taxes to free up money for wealthy corporations. Reagan and his cohorts pitched that this plan would enable money to trickle down into the average person’s pockets. However, most Americans who endured Reagonomics in the 80s say that what happened was that the rich got richer, and the rest got in debt. Additionally, the U.S.A. tripled its deficit.

DeVos was fired as the Republican Finance Chair for running finance meetings as though they were Amway Opportunity events and making people feel extorted. Yet somehow, Dick DeVos got put on the Board for The Presidents Commission on the HIV Epidemic, despite being federally indicted. As would be expected, with his Dutch Christian worldview coupled with his position of influence, he purported that the blame for the AIDS crisis was to be placed on the victims, stating on record that “Actions have consequences, and you are responsible for yours,” later described as a cruel contribution to the AIDS dialogue. 

After Ronald Reagan’s presidency was up, Dick DeVos and Jay VanAndel sidled up to none other than—you guessed it, George W. Bush. They earned yet another presidential ally through astronomical financial contributions to his campaign, thus successfully getting him elected. Soon, George W. Bush was also speaking to 40,000 Amway representatives at a rally and singing its praises as a “family” and “an extraordinary company” that boasts a “system of free enterprise where anyone can grab hold of their dream, work hard, believe hard, and make it come true.” Amway could go unscathed during the Bush years while people were subjected to cult-like tactics and devastating financial exploitation.

When Bill Clinton was elected, Amway worried. They were dealing with the Democratic party instead of the Republicans. They needn’t worry, however, as Clinton was not interested in consumer protection. He brought in the very FTC Commissioner, Robert Pitofsky, who had ignored all the evidence that Amway was a pyramid scheme and made him the FTC Chairman. Under Pitofsky, small companies did get prosecuted occasionally, but the more prominent entities, like Amway, would get away with the same or worse, on a larger scale. Bill Clinton would even do a video testimonial for the Direct Selling Association, promoting multilevel marketing internationally. He would later give a speech in Osaka to promote multilevel marketing as a viable career option supporting equality for women. The DSA was presented to me as an outside, unbiased third party when I was an MLM representative. It would not be until eleven years after I initially entrusted them with my reputation and livelihood that I would learn the truth. The Direct Selling Association is merely a multilevel marketing industry lobbying arm, founded and funded by the companies it pretends to regulate. The Direct Selling Association, I would learn, is a public relations company that dresses itself up as a regulatory board. 

Several members of the Clinton administration would follow suit from the Oval Office pundits who came before them and would promote different multilevel marketing companies. Former Secretary of State Madeleine Albright would make 10 million dollars over six years as a hired spokesperson for Herbalife. During Clinton’s time in office, multilevel marketing companies continued to expand, and sights were set on China as the ultimate country to expand to. In 1998, however, the Chinese government stepped in to shut it down, at which point the Clinton administration stepped in to defend the industry to China. They successfully garnered access to China for the biggest companies, equating to Amway’s vast expansion. Despite the support of the Democrats during this era, DeVos and VanAndel determined that right-wing government more closely matched their values. Mr. and Mrs. DeVos each gave the Republican Party half a million dollars to aid in getting George W. Bush’s son into office in 2000. Likely as a show of appreciation for this help or because of the insular world that they existed in, Bush hired Amway folks to positions of power within the FTC, thereby taking the one governing body that protects consumers and ensuring a bias towards multilevel marketing. You can’t make this shit up. 

When Barack Obama became president, consumer advocates were hopeful. Obama seemed incorruptible. However, four years went by, and it appeared as though the handcuffs remained on the wrists of the FTC. Ultimately, Obama seemed to have bigger fish to fry, such as two wars and a recession. But in 2012, billionaire hedge fund manager Bill Ackman, who alleged Herbalife was an illegal pyramid scheme destined for collapse, took a billion-dollar short position on the company. In a legal dispute between the FTC and Herbalife, after a two-year-long investigation, despite it being determined that their compensation plan was “problematic,” Herbalife received a sweetheart deal, and their stocks ended up going up. This was thanks to a former FTC Chairman being the Herbalife defence, having been promised a position within Herbalife after the trial. 

Image: Shutterstock, TZIDO SUN

I think you can guess what happened when Trump got into office. But years before his election, Trump was already all up in the opportunities that rich MLM companies could afford him. In a promotional video for ACN, Donald Trump touted the MLM as a company that offers “two essential components for success”: a “great opportunity” with “great people” and at just the right time. The Trump family has been sued in New York for defrauding families of millions of dollars by leveraging his brand and influence in the television show, “The Apprentice,” to invest in ACN. In 2008, Trump actively searched for an MLM to pad his pockets. He met with a company previously involved with NuSkin, and made a deal to be the face of a supplement company they named “The Trump Network.” Trump aimed to grow this company to become bigger than Amway and touted it as a “rescue and recovery program” for people financially devastated by the Recession. The company that became “The Trump Network” was previously called “Ideal Health” and had been up against many FTC complaints about its product “Supreme Greens” being touted as a cure for cancer. And I naively thought the MLM I was with was the only supplement to help cure cancer. If you know, you know. We talked about it a LOT.

During the Trump years, in her confirmation hearing with Bernie Sanders, Secretary of Education, none other than the daughter-in-law of Amway’s Dick DeVos, Betsy DeVos was questioned whether her family had donated in the ballpark of 200 million dollars to the Republican party, to which she admitted was “a possibility.”

A Legacy of Lies

Thus ends our MLM origin story, a tale steeped in government corruption with the rich looking out for the rich and the rapt fans at the bottom of the barrel, unwittingly losing along the way, their good faith trampled upon as they cheer on their heroes that promise them financial freedom and ask for God to bless them. It all began with a dude who just wanted to get women and impress people. It ended with Amway taking over the government and becoming an insidious influence on North American culture. A lot can happen in a century.

In Ponzinomics, author Robert L. Fitzpatrick writes that Amway (who remains in good standing with the DSA) had generated the most significant number of “cloned descendants.” Most multilevel marketing companies structure themselves after the template from which Amway was created and use the infamous Amway trial as a precedent to imply they have stayed within the confines of the law. Yet with an uncanny ability to talk from both sides of their mouths, every single multilevel marketing company also positions itself as a unique unicorn. However, hindsight is 20/20, especially when you combine it with research. From plant extracts to psychological sales strategies down to the convoluted compensation plan, the facts speak volumes. If it looks like a duck and walks like a duck, it is probably a duck.

Image: Shutterstock by zjuzjaka

When we scroll social media and are inundated with filtered faces with perfect homes and happy children hawking magic elixirs, it can seem like an alluring world to step into. One would never think to connect these boho-chic beauties in their Free People frocks to old white dudes in suits making million-dollar handshake deals. What we are marketed is rarely the full picture or even the most important details. We are sold hope, told to believe in our dreams, and convinced we can make them a reality. The sad truth is that if it were likely, the rich would not prosper; ”The Plan” in its conception was and still is designed for most to fail and to stumble away, thinking it was their own fault.

By comparing themselves to Amway when it makes strategic sense to them, weaponizing trust, manipulating faith, and relying on loaded language and magical thinking, companies continue to take egregious advantage of legal loopholes one hundred years after the vitamin wellness craze was first invented. And while the DSA reports a downturn in sales this year, it’s safe to assume that multilevel marketing companies will continue to avoid accountability for the practices they encourage their representatives to employ.

That is unless we, as a workforce, as a community, and as consumers, stand up for our freedom of mind—and when we see something, we stand up and say something.

Sources:

Fitzpatrick, R. (2020). Ponzinomics: The untold story of multi-level marketing. FitzPatrick Management Inc. 

Marie. J and Gallucci D. (2018, November 26). The Dream S1 E10: The American Way.

Nutrilite history. Nutrilite. (n.d.). https://nutrilite.com.my/en/history  

Zipper Bros Films. (2016). Betting on Zero. United States.

Voytko, L. (2021, June 28). FTC warns 16 multi-level marketing companies about coronavirus fraud. Forbes. https://www.forbes.com/sites/lisettevoytko/2020/06/09/ftc-warns-16-multi-level-marketing-companies-about-coronavirus-fraud/?sh=6d213df37b9d

Zadrozny, B. (n.d.). “Magic dirt”: How the internet fueled, and defeated, the pandemic’s weirdest company. NBCNews.com. https://www.nbcnews.com/news/magic-dirt-internet-fueled-defeated-pandemics-weirdest-mlm-rcna6950  

Scheibeler, E. (2009) Merchants of Deception: An insider's chilling look at the worldwide, multi billion dollar conspiracy of lies that is Amway and its motivational organizations. BookSurge Publishing. 

Wikimedia Foundation. (2023, July 28). The Trump Network. Wikipedia. https://en.wikipedia.org/wiki/The_Trump_Network  

Press release. Direct Selling Association. (n.d.). https://www.dsa.org/events/news/individual-press-release/u.s.-direct-selling-association-releases-2022-data-showing-steady-interest-in-direct-selling