The telltale signs of a pyramid scheme

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What’s the difference between a multilevel marketing program and a pyramid scheme? Pyramid schemes are illegal.

If the money you earn is based on your sales to the public, the company may be a legitimate multilevel marketing plan. Here are some signs that the company is operating a pyramid scheme:

  • Your income is based mainly on the number of people you recruit, and the money those new recruits pay to join the company — not on the sales of products to consumers
  • You’re required to buy lots of inventory
  • You’re forced to buy other things you don’t want or need just to stay in good standing with the company

One other key difference: You’re likely to lose money if you sign up for a pyramid scheme.

Today, the FTC announced a settlement with Fortune Hi-Tech Marketing (FHTM), a company that operated an illegal pyramid scheme disguised as a multilevel marketing program. Over 350,000 people were scammed out of a total of at least $169 million. The settlement bans FHTM from the multilevel marketing business and from deceiving consumers. FHTM will fork over at least $7.7 million, which will be returned to consumers.

If you’re planning to buy into a multilevel marketing plan, get the details. 

  • Ask these questions to learn if it’s a pyramid scheme. Make sure your income is based on sales to the public, not on what you have to buy yourself or the number of people you recruit.
  • Be skeptical of rags-to-riches stories or portrayals of lavish lifestyles made possible by participating in the program. These stories may not represent the experiences of most members.
  • Exercise doubt. Even if a company sells products or services you’re familiar with — or boasts celebrity members — it may not be legitimate.

If you’re in the market for a job, investment, or work-at-home business, check out our tips to avoid other business opportunities scams.

Blog Topics: 
Jobs & Making Money

Comments

Nice to know FTC is looking out for the little guy. Now what about them Herbalife?

Not to mention Amway and most other MLMs.

Our own personal experience with the Amway products convinced us to continue to buy from the salesperson. When a housewife or cleaning person bought their products, we received products that worked as well as when demonstrated to us. What the salesperson bought for stock, he or she sold it unless they never knocked on a door.

Herbalife and Amway might look legal and proper on paper but are often run as illegal pyramids. These MLM products are not sold to consumers. The vast majority ae self consumed by distrubtors who have stars in their eyes hoping to get rich and live off resdiaul income.

Some friends of mine are into Amway & are showing it to me. I am skeptical, but as I look into it things are looking good. There's some points in one of the first books you read that appear to contradict what the uppers are saying, but that's where that "Ask Questions" part comes in. Anyone can make a company look bad, either by accident or for lolz. Those that only buy their own product aren't necessarily doing it wrong, but they won't make as much as thewy would 'hiring' a 'team'. Essentially the distributor gets points for product sold, then paid on total point value (PV). Anyone can surpass their mentors, so not shaped like a pyramid :)

Anytime a business proposal requires you to set a piece down on a board and move it through the squares with the promise that you'll be passing "Go" and collecting your money, don't do it.

All you'll be doing is selling this idea to many people, more than likely your friends and family. If you're just going to be selling anyway, you might as well either really start your own business (without a scammy system), or just sell at a B2B organization or car lot.

You'll get much more profit to show for all of your hustling.

Dont forget the yearly membership dues of 100+. THAT was never brought up in the kool aid swilling Amway meetings. In fact, it was dressed up as totally obligation free.

No offense to your logic, but your information is lacking.

It's kind of like you said Apples and oranges are the same. Well sure, are both fruits but you shouldn't feed one of those to an infant. They are different.

I'm not saying anyone should join either of those enterprises, I'm just saying while your logical reasoning doesn't have an issue, the information you have is flawed

Herbalife distributors from www.seekingalpha a investments forum keep saying that FTC has been instructing HLF on how to make changes so that the company will get out of the CID with only a small fine and that Herbalife will be able to continue it's endless recruiting chain business practice that's prohibited by FTC in writing? Also there are lots of postings that FTC will never be adversarial with HLF due to the influence of Alan Hoffman, Pamela jones, and other HLF political lobbyist?

If the FTC does anything but shut Herbalife down it will be a travesty and a breach of Justice. The horror stories abound and the fact that the Enterprise is is clearly based on recruitment and has nothing to do with retail sales is enough to Warrant action from the FTC. FTC, the world will be watching.

Can anyone name a MLM company that was shutdown by the FTC for being an illegal pyramid scheme, if they had - 1) NO inventory loading 2) No profit for recruiting members 3) An excellent product return policy

The FTC has traditionally taken on the "easy" cases. HLF could make history! Why? Because only a very small amount of the products are sold to legitimate customers, and if you read the article, this is a primary sign of an illegal pyramid. Throw in the lead generation and other tool scams, and HLF will be fully disgorged.

1, no inventory loading? Hebalife distributors are re-evaluated for their qualifications every January. Based solely on how much products they purchased. Distributors can claim the products are for their own personal consumption any time they need to make up the volume points they needed for the qualification. 2, way over priced products : 2-10 times of equivalent products in the market. Why would a real consumer pay such premium for products that are available everywhere? 3, the refund policy. Herbalife distributors make purchase through their uplines. Uplines get rolty override payment on every purchase their downline made. This policy only encourage focus on recruiting, push unwanted purchase, and in factual denied refund.

Thanks for the information on these company. I have been scam by a company Named Creative Stream or AKA Private Community Creative Enterprises, or AKA CEP Community. They promise to give you money if you recruit people into the company. Get 6 to 8 people get 6 figure salary. They claim an investor was placing the money in a money market account that increase our income. The conference calls had over a thousand people on the line waiting for their return of investment. They even came to the state I live in and did a meeting to confirm they were legit. People took picture of them and with them. I join in September of 2012. The money they took was over $700,000 to $800,000 maybe more. that amount I'm aware of. There were policemen and other people with degrees that got scammed. BE Aware of this company. You can contact me if you have any additional questions.

Do you know any thing about (Swiss golden)I am trying to get in to, but it's like a pyramid scam, because .........yes! you have to recruit people

Just because you recruit people does not mean it is a scam. If it is a requirement yes I would be very skeptical but if its not required than its ok. If they offer a product or service much better.

Amway is a scam

Amway is THE number one multi-level marketing business. Its not an opinion, its a fact. Look it up. Its a legit business.

Actually, Avon is the number 1mlm company and has been for years.

Not since 2012

Your both wrong worldventures is number one. With a 927% growth rate since 2009 doing just under a billion in sales last year

Diana, if you think Amway is legit, you need to google "stop the amway tool scam wordpress" and get yourself edge-a-mu-cated.

Tex, Amway is legit, instead of listening to people who fail when utilizing Amway as a platform to build their asset, why don't you talk to people who were successful when signing up in Amway, it's like you and I getting gym memberships and I go to the gym everyday and you go once a week and you don't get results and I do and you tell everyone that the gym doesn't work when in actuality it was you who didn't put in the work.. Then you talk to people that utilized the same gym as you and all the people who didn't get results becomes the people you listen to the most because you have the same thinking they do. Which is small minded small business get something for nothing get results quick type mindset. Instead of listening to the long term delayed gratification hard working individuals who actually did what it took to make it work!

The successful ones? You mean those that are already on the top of the pyramid? 99% of IBOs lose money. The average income is only around $150 a month, IF that, and I believe I'm overstating. I almost fell for this trap back in the early spring. Buying almost $300 of overpriced stuff just for $9 back...? I don't think so! That's not a profit or even savings. That's a complete loss

What do u think of Senegence? I was talked in to joining and have a ton of issues with the way the company operates. If I were told that purchasing product would be this stressful I would have never joined. They have sold me products they don't have! Kept my monney for a 2 months at a time and are out of stock on 99% of the items 99% of the time. When they release a Lipsense color the site freezes and by the time(meaning hours) you get in the the product you want is gone. Senegence doesn't put limits on the amount of products one distributor can buy. Growing your business should be the only stressful part of a company NOT GETTING PRODUCTS! at this point I feel as if I've been very mislead and any advice Your be greatly appreciated. Thank you

U go girl ur right about that ppl need 2 recondition there minds

Wordpress is to express opinions Not real facts ( information )

Wordpress operates almost a third of the websites on the internet. Anything you read from ANYWHERE should be fact checked and if someone has a legit blog that is properly cited and notated it can be just as legit if not more so than a newspaper article...

Well, then tell that to the attorneys of Apple and the CEO's of more than 500 major corporations who partnered with Amway. Tell them to hire you cause you must be smarter than a of them.

Its easier for people to say amway is a scam cause they don't want to put the work and the effort to build their business and also unfortunately the person that got them involve don't set good examples. That's cause a bad image on the company

I agree wigh you Caroline

Haha. The standard line of "someone didn't put in the work and gave up." How come 99% of people lose money in an MLM business? The same goes for Amway. They are all the same. Period.

Try to understand something before classifying it in a general stigma. "They are all the same." That's how you justify racism, sexism, and many other means of unfair judgment.

Yes you are right

As a business owner, I am at the top and my employees are there to keep my profit margin. As long as you don't own the company you "work" for and you are not taking the vacations your boss can afford you are with the other employees holding him/her up. I am at the top of the pyramid. People have to ask me to take vacations. If you consider that to be acceptable, congratulations you are part of the mentally conditioned 95% who will work for a retirement that is not enough to fulfill your dreams or freedom.

I agree 100% with you Caroline!

Sounds like someone couldn't cut it as a distributor.

Amway can't be a scam if the FTC uses it as a benchmark for all network marketing companies. It was probably a person that you had an experience with that wasn't a good person. I have encountered some myself outside of working with amway. Some were my friends, some were my coworkers, and some were even my family. Be careful about some of the people you work with!

It's actually not. It was even investigated in 1979, an investigation initiated by Amway to disprove those claiming they were fraudulent. I'm guessing you may have joined and didn't put in the work and didn't see a good return and are now upset. Well, it's just like going to college, if you don't do the work and do well in college and fail out and have to quit, you will claim college is stupid and doesn't work just because you weren't successful. Shame.

I'm so sorry you feel that way. My guess is you had a negative experience with a person and not the company.

Really? How so?

Call the FTC if you want ti be proven wrong. It has what it calls th Amway rule. Any new multilevel wanting to be verified will have to live up to Amway's standards.

U are definitely living in a box or a cubicle.but don't worry we are the cure for the common cubicle.

Wow!!! Love your reply to that guy haha!! Amway rocks!

lol,YES YES YES!!! How can a "scam" partner with Apple and Forever 21 lol. we are the cure :)

In what way? A+ rating from the BBB.

If Amway is scam why it has been in the market for 80 and over 100 countries?

FIY, religions have been around much longer promising salvation, heaven and paradise. Look at all the suckers.

Using the religion card isn't cool. First, your still living in this world (obviously haven't made it to salvation because your comments, and cannot see the "heaven & promiseland" until afterlife or after the rappture AND you are a christian. No one except for Zealots name a particular date for Christ to return. Get a life....with God (not just religion) and you might be surprised.

how? Its Been Around Since 1959 & Was Looked Over By The FTC For Many Years In The 70S As A legitimate Business.

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