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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.