Tuesday, July 23, 2019

MLM Schemes and the Mishnah

Over a quarter of a century ago, I nearly got involved in a Multi-Level Marketing scheme. At the last moment, my father, z"l, heard about it and warned me off. I then consulted my posek, who said these immortal words to me: "It's assur. And even if it's muttar, it's still assur."

As the years progressed I've looked into it more, and I see the wisdom of these words. Unfortunately, and astonishingly, there is precious little in writing about this from rabbinic authorities. The one person who really campaigned against such things was the late and great Rabbi Eli Teitelbaum z"l. Perhaps the dearth of literature on this topic is because the question is rarely posed, with people preferring not to see it as a halachic question. And in one case where I convinced someone to ask a shaylah about it, both poskim that he consulted were not equipped to answer the question.

The problem is that people don't understand the insidiousness of these schemes. Rabbi Teitelbaum did a good job of explaining it in this article, but it's not quite enough, for reasons that I shall explain.

MLM schemes are just pyramid schemes in disguise (despite what people will try to tell you otherwise). With these schemes, the physical product being sold is never actually worth the amount for which it is being sold - if it was, then they would just use conventional marketing. Rather, what is being sold is a combination of the product, plus the opportunity to make money. And, for mathematical reasons, all these schemes end up being pyramids whereby the people at the top make money, and the people at the bottom naively lose money (and often relationships too). There's not a single MLM scheme you can show me which doesn't have a lot of unhappy and disappointed people at the bottom.

Now, there seems to be a way to make this halachically permissible, as did the poskim that I mentioned earlier. They said that as long as you describe the situation clearly and honestly to the person that you recruit, then it's fine. You have to spell out that you are selling a marketing opportunity which might not be profitable for them.

But there's a problem with this, which I was happy to discover is made clear by a Mishnah:
מִי שֶׁנִּתְעָרֵב מַיִם בְּיֵינוֹ, לֹא יִמְכְּרֶנּוּ בַחֲנוּת אֶלָּא אִם כֵּן הוֹדִיעוֹ, וְלֹא לְתַגָּר אַף עַל פִּי שֶׁהוֹדִיעוֹ, שֶׁאֵינוֹ אֶלָּא לְרַמּוֹת בּוֹ. 
 "If someone's wine became mixed with water, he cannot sell it in a store unless he informs the customers. And he may not sell it to a merchant even if he informs him, as it will only serve for him to deceive with it. (Mishnah, Bava Metzia 4:11)
This Mishnah is amazing! It tells us that halachah requires us to take a different set of factors into account when we sell to a consumer versus when we sell to a distributor. You can sell a defective item to a consumer, as long as you notify them of its defects. But you can't sell it to someone who will be selling it to others, as there is no way that you can be sure that they will do the same, and there is every incentive for them not to do so.

This would perfectly apply to MLM schemes. With MLM, you are trying to turn purchasers into distributors. And so telling them about the risks doesn't help and is irrelevant. Ultimately, these schemes make money for people at the top via selling to naive people at the bottom, who pay money in the naive belief that they are going to make money. Even if you personally make the situation clear to the person that you are selling to, this is not how it will continue. The system requires people at the bottom making a foolish, misinformed decision. The person that you sell to is virtually guaranteed to overstate the wealth-making opportunities.

As my own posek so wisely told me over 25 years ago: It's assur. And even if it's muttar, it's still assur.

31 comments:

  1. There's a quote attributed to R' Soloveitchik: "It's assur because it's stupid and it's stupid because it's assur."

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  2. The most important sentence, from a conceptual point of view, is "And in one case where I convinced someone to ask a shaylah about it, both poskim that he consulted were not equipped to answer the question." So much for Da'at Torah.
    And "the question is rarely posed, with people preferring not to see it as a halachic question" reminded me of when my Rav in Houston remarked that for every question about Hoshen Mishpat he gets 1000 questions about Yore De'ah.

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    1. The complexity of Choshen Mishpat questions is not to be underestimated. A Dayyan on a Beis Din once said that, in 18 years of serving as a dayyan, he never encountered the exact same question twice!

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  3. Thank you for this article and the article of the Rabbi. For years I have been speaking out against these odious flim flams. I even got kicked out of two Facebook groups for calling them out. They cited I was being negative and out you go. One FB group even told me that for me to come back in, I had to say I am sorry and never, ever be critical of MLM's etc again. These two groups are based here in Israel and target Olim. My own brother in law is into various MLM schemes and got people in my Yishuv into it. They lost money and are upset at me and my wife..even if we had nothing to do with it. One guy kept asking me for my brother in laws address. I gave it to him.

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  4. I recommend the podcast series "The Dream" for anyone wanting to learn about how MLM's really work.

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  5. Selling books that claim to have the only correct interpretation of Torah is also asur...

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    1. Do you really believe that? I would really like you to campaign to put that into practice.

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    2. Of course, you'll have to honestly face up to the facts regarding which books claim to have the only correct interpretation of Torah, and which do not.

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  6. Hmm. This sounds a lot like a charedi argument: the mishnah makes a comment, so everyone must comply. You of all people should be aware that not everything in the mishnah is halacha. I am fully aware that MLMs are not a sustainable business model and that they cause more harm than good, but to claim that they're assur on the basis of a single mishna? That's more of a charedi argument than I'd expect from you.

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    1. Not sure if you're an am haaretz, a troll, or both.

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  7. You claim to be the only one who has the correct interpretation of maaseh beresheet. You're the only one in the world to date, who claims the entire story of maaseh beresheet to be an allegory - because the world has to be billions of years old. Selling this type of nonsense to unsuspecting Jews, isn't any less assur than MLM.

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    1. No, I don't claim to the only one who has the correct interpretation, nor am I the only one to claim that it is an allegory. On the other hand, I do know plenty of people who claim to have the only correct interpretation of Torah, which doesn't seem to bother you. But this isn't the forum for this discussion.

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    2. There is literally zero correlation between having a blog for controversial Torah thoughts and trying to get people involved in a financial scam. The fact that you conflate the two is utterly bizarre.

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    3. Of course it does! It's usually those screaming asur about something, that inevitably have a wagon full of problems that they themselves need fixing.

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    4. One who believes in six literal days even though the sun was created on day 4, is a prime candidate for an MLM scheme. Good luck!

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    5. Ironically, it's the very rationalist that subscribe to the kabalistic idea of the world being a metaphor, hence maaseh beresheet is a metaphor. I hope this irony is not lost on you!

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  8. You may be right. And I recently heard a rabbi contend the same thing about hard money lending, which lots of frum Jews are now getting involved with. That its assur, and even if its muttar its still assur. And the only thing I can say to you both is:

    Be careful of prohibiting too much. Because its darn hard for religious Jews to make a living. Great numbers of jobs are already off limits. Jews need to be entrepreneurial to survive, and that often means new ways of doing things. Much of modern financing techniques, that may have once seemed questionable, developed this way. So I cannot and I am not paskening one way or another on either issue. I'm just saying - be careful.

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    1. "Because its darn hard for religious Jews to make a living. . ."

      And that makes it OK for them to lie to others, about the likelihood of making a profit from a MLM scheme ?

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    2. I don't know anything about MLM. It might be a "scheme"; it might simply be a new mode of business you're not familiar with. That's precisely the point. To actually make a living in business is very difficult, the many millionaires in our community notwithstanding. Thus, one should be very sure of what he speaks before he proclaims something prohibited, all the more so with cutesy formulations like its permitted but still prohibited.

      I note also that just like techles and kollel, it seems like halacha very much depends on one's politics. Not a surprise at all, of course. Everyone is machmir and everyone is a maikel, just on different things.

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    3. Because its darn hard for religious Jews to make a living.

      It's no harder for religious Jews than any other segment of the world's population. Once you account for the culturally-enforced ignorance of a subset of that segment.

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    4. "Because its darn hard for religious Jews to make a living. Great numbers of jobs are already off limits."

      Can you clarify this a bit? Why should it be any harder for frum Jews to make a living than anyone else? What sorts of [honest] jobs are "off limits" to frum Jews??

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    5. If the chareidi rabbonim would allow their followers to study medicine, architecture, engineering, physics, chemistry, math and psychology (partial list) , it wouldn't be so hard for them to make a living as observant and God-fearing Jews.

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  9. Thank you for writing this important post. I know plenty of people who got caught up in these cons, lured in by the false promises made. My wife and I are often joke how these MLMs often have to conceal their company name because they have such bad reputations!

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  10. I would also look critically at any group medical cost-sharing plans that may resemble conventional health plans in some ways but are not subject to the same legal safeguards and are not vetted by competent actuaries. These exist within both Jewish and non-Jewish faith communities.

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  11. "You can sell a defective item to a consumer, as long as you notify them of its defects. But you can't sell it to someone who will be selling it to others" -- One could argue that with eBay and CraigsList, every consumer can be a seller/distributor.

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    1. Re-selling an item after one is finished using it is another matter entirely.

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    2. OK, but still, some folks sell their stuff without using it first.

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  12. Rabbi Tzvi Breverman of Yerushalayim (Gaavad of Beitar) has been active the past few years in warning naive chareidim of the many scam schemes people in the community have fallen for.

    He has spoken out against kvutsat rechisha groups for buying apartments, real estate investments in chutz laaretz, buying farmland with hope to rezone for residential building, etc. Yet he is the only one who has publicly made such statements. Perhaps the other rabbonim are embarrassed how foolish their community members have become.

    Maybe you should do a post about the fact that chareidim, especially Israeli, with their lack of secular education and exposure to the business world, have become easy prey for the worst scams.

    An Israeli friend of mine lost almost all his life savings in a Bitcoin investment, when he invested when prices were high.

    Of course, the streets and advertisement circulars of chareidi communities in Israel were inundated by ads for Bitcoin investments during that period. Now they have vanished, sure to be replaced by the next scheme soon. They make sure to use the chareidi catch-phrases, such as "great hishtadlus".

    There seems to be a cycle, when a scam is exposed, it gets replaced by a new one for people to fall for. If people would only have the ability of thinking critically, this would not be widespread.

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  13. שולחן ערוך אורח חיים הלכות בית הכנסת סימן קנו
    א) אח"כ (א) ילך [א] לעסקיו, דכל תורה שאין עמה מלאכה * סופה בטלה וגוררת עון, כי העוני יעבירנו ע"ד קונו

    She-nir'eh et nehamat Yerushalayim u-binyanah bi-mherah ve-yamenu (may we see the consolation of Jerusalem and its rebuilding speedily in our days ),

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