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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

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.

How is that if you get paid on valume not by recruiting you don't get paid by someone joining in.they are backed by the Better Business Bureau and get a A in the companycompany even the FTC back them up so scam I think not.Get your facts.

If that were true, why would the lawyers of such companies like Best Buy, Best Pro, Sears, Under Armour, etc. Want to partner with them? Why would tge, Amway name now be on the college Football National Title?
Seems that people always throw rocks at things that shine.

Why did the lawyers of WorldCom and Enron partner with Amway? Scams of a feather flock together?

They are hardly "partnered." Amway simply sells products by these companies through their IBO web pages and their Ribbon Gift Catalogs- but at inflated prices. Compare the prices in these catalogs with retail distributors and there is typically a markup of 10, 20 percent or more.

I am no fan of Amway. It is not a scam. You are a moron.

Amway is a SCAM...

The only way it is not shut down is that they hire very powerful lawyers and lobbyists to keep them one step ahead of a complete shutdown.
Their scamming business practices and recruiting has worn out its welcome in much of the US...Now, they rely on overseas sales of uneducated, usophisticated persons for much of their revenues..

I have no comment do you know about LTD another scam company

I assume this is a question because the FTC has deemed Amway a strong and viable business that is highly desired among the masses.

Where did you go Tex? Can you present any facts with that claim?

We have to categorize it as a profession scam.. 90% of the people joining this scam will be leaving the chain within couple of months by losing full money and with the useless items they get with that money.. collecting money for membership is scam and its a pyramid scheme of fraud

Every item except food and over-counter drugs have a 4-6 month refund policy. If they lose all their money within 4 months, they can just send the items back. The other fees are for the business license, usage of the online store, and training in business, or 'mentorship'.

You never paid for a magazine subscription? Maybe all anti-virus companies are fraudulent as their keys only work for 1-3 years. Xbox Live, Playstation online, all non-F2P MMO's.. membership=scam apparently...

Tex, looks like you just got an education by those who are knowledgeable regarding Amway. Do your homework friend before spouting off.

Yes, I agree with Tex, it is a pyramid scheme because you have to shell out $181.00 for initiation fees which they call investing. I also looked at the products, and I've never seen these brands before and they cost 5-500 times more than the famous brands we see at any store. Amway is a scam in my opinion.

When you write "not on the sales of products to consumers," can you be more specific? There's a lot of uncertainty now about the FTC's stance on the practice of paying commissions on internal consumption (when distributors purchase product for personal use). Are distributors considered "consumers" for purposes of understanding the quote above? Any insight would be appreciated.

Hi, Kevin,

The FTC's article about Multilevel Marketing has detailed information that can help you evaluate a specific opportunity. Generally, the advice suggests that one sign of a pyramid scheme is if distributors sell more product to other distributors than to the public — or if they make more money from recruiting than they do from selling.

Got a call tonight about 10pm - what nerve calling after 9 about a great business opportunity. I called them back 845-367-7647, told them - there is a NOT TO CALL after 9pm law & I am reporting them to the FTC. Then they called my other home line - so I reported them to the FTC and again, put myself on the DO-NOT-Call registry. Everyone who gets a call & has a number should call back & give them a where-to-fore consequence - calling the FTC - what people won't do to make money & think to call after 9pm - & quite frankly, my husband & I don't want any of this at all! Really! Really!

Well how did they get your number then? Was it automated?

I would like know if there ever was a MLM company that was shut down by the FTC that had 1) No inventory loading 2) No recruiting payment and 3) Excellent Return Policy.

Well, free enterprise have it's price in the our blossoming world of materialism, but all the same, it demands constant healthy checks. I give you a big thumb up for the great works.

FTC cant protect you from a pyramid scheme. You only can do that.

If you dont want to be a customer of the company, if you would not buy its product at its retail price, who do you think would? DONT join, DONT invest in such a company!

Tex - According to Amway's Facebook: After an extensive 1979 investigation, an FTC Administrative Law Judge, supported by the entire FTC Commission, stated that “The Amway system is based on retail sales to customers ... Amway is not in business to sell distributorships and is not a pyramid distribution scheme.” Amway fully supports solid anti-pyramid scheme efforts, including legislation, that draw a clear line of distinction between legitimate companies and illegal pyramid schemes.

MLM is not your average income generator and not for average, lazy people. If you want money to just come to you every week, without doing much thinking, or planning, then keep your 9-5 cubicle job. MLM is growing because more and more companies are realizing that it is cheaper to give out payments for performance and bonuses then it is to pay for advertising their product. There is a skill to learn to be good at this. There are many books written by successful MLM'ers on the subject.

What about wakeupnow? What are your opinions?

Amway is not number one MLM company in the world and is not a scam either. Yes, it has over 80 years but its not the most successful company either. There are many companies out there that have been in the market for. A few years and are already making almost the same amount as Amway and are open in 35 countries. Most of the time people fail in MLM companies not because it's a scam just because they don't do what they are suppose to or weren't taught well. MLM is an industry where a lot of personal growth and studying to prepare yourself and take action. Many people don't take action and that's when they mess up, don't succeed and state it's a "scam".

Amway is the #1 MLM now,it is in over 100 countries and territories now, check your sources. It is 54 years old, check that one out, too. There is no MLM close to #2.

That is a fact. I think people should put their emotions on the table before they start typing.. Do your research FROM REPUTABLE places. When you talk you expose yourself, might want to make sure the facts are in place.

Amway is #1... And as far as other companies, the key is not to make a lot of money the first year, but to be stable and have consistent growth. Amway grows about a billion every year and has been for the past 5+ years regardless of the economy.

I agree that Amway is not a scam - it just involves work and many people are not willing to work - period.

Yes Amway is number 1 in the world you can look the information at the WDSA ( WORLD DIRECT SELLING ASSOCIATION.)Many new companies do some lying so too convinece new people!

Companies like Amway/Herbalife, etc.are being investigated. Some shareholders are filing lawsuits. WakeUpNow out of Utah and at present has 46 complaints filed against them, public record.
People need to do background checks. If one gets in own the ground, may make money. Sooner or later, you have start recruiting as you have already gotten your family and friends signed up. If all MLM worked, no one would have to go to a regular job. Just saying...be wise.

Amway to my knowledge is not being investigated by any legit entity or agency of the United States, and they don't have shareholders as they are a private company that actually own everything they have. Unlike other MLM companies, such as Herbalife like you mentioned, which is a Publicly traded company, is being investigated by the FBI/FTC for allegations of possible Pyramid schemes.

What about that new company called Wake Up Now? Anyone have any informationa as to it being a legit MLM company?

Is Advocare considered a legit business?

STAY AWAY from Cindy Clark's and Kim Schultz's "as seen on TV" Online Profit Stream!! I called the 1-800# on her website, and was directed to "IMPACT KI," an online "education" scheme. Cindy Clark's site sells you online access to "making money" at home for $221, while Impact KI claims they can teach you how to set-up your business online. FOR AN ADDITIONAL$8,700!! I Never received an email confirmation OR receipt from Online Profit Stream, and NEVER received another bit of information from them. I've emailed them numerous times, and left innumerable phone messages - no response STILL ! I called to cancel, and "customer service" informed me they "could not refund my $97 because I had not made an effort to succeed!" On to IMPACT KI: they sold my cell # to numerous website creators who continue to call me EVERY SINGLE DAY (1200 minutes used in one month!) I've emailed the "Senior Supervisor," and the Student Manager; customer care development services; training coaches, etc - THEY HAVE NOT FIGURES OUT HOW TO REMOVE ME FROM THEIR DATABASE, so I keep getting phone calls every day. And, they were going to "coach" and "educate" me on computers! I've gotten no responses from Impact KI, but, at least they have refunded my money - unlike Online Profit Stream. I sent copies of receipts and all correspondences to/from both "companies" to the FTC and BBB. IF AN ONLINE COMPANY IS MAKING MONEY, SHOULDN'T THEY BE REGULATED...? Please see the Better Business Bureau website for ratings of these 2 companies...

Thanks for sharing your experience and for filing a complaint with the FTC. It's important to submit a complaint because investigators from all over the country access the FTC's complaint database. Watch this video to learn more about how to file a complaint with the FTC and why it matters.

Wakeupnow has had complaints, but mostly because their refund policy for their most popular suite of products and services is not very user friendly. I've read the complaints on the BBB website and most are frustrated that they weren't able to get a refund on their initial $99.95 investment because they weren't able to turn in their refund request within the timeframe required. While this is a valid complaint, I also noticed on the BBB website that Wakeupnow has resolved all 51 complaints.

I haven't seen any complaints on the BBB site about this being a pyramid scheme. I know the FTC handles issues with pyramid schemes so I'm writing here to figure it out. According to the article above, it's a pyramid scheme if "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". According to WUN, there is no fee to join as a customer or IBO. I know another sign of a pyramid scheme is selling to other distributors in your downline. But what if those distributors are actually using the product or service? Shouldn't it be allowable to sell to these people whether or not they decide to become distributors themselves. Any comments would be greatly appreciated

MLM is the business of yesterday
Join now on one no matter witch one
Do the work
And
Live a happy life no matter what the outcome will be
Or
Start your hown small/big business so you can start employing others that are looking for a job
Because working for someone else is not the future you wanted or dreamed when you were a child.

God bless those who put others on their dreams.

Just learned of the judgment against Fortune High Tech Marketing! Should I have been contacted regarding the refunds? I payed $1500 to enroll and became aware that it was all based on recruiting instead of selling and became discouraged and bowed out.. How to I get my fee returned? Or do I?

Hi,

There will be a press announcement in the near future once refunds are available for consumers who lost money to FHTM. Learn more about the FTC’s refund program, and recent FTC cases that have resulted in refunds.

Is World Ventures a scam because it seem really legit to me. It hasn't been around that long but from my experience with them.... everything is legal

I was scammed by FHTM back then. I joined and paid for a some money and monthly service however i was rarely earned anything. All web services and products are bs. I didnt know that FTC is finally looking into and do a thorough investigation. Is there anyway that I can file or report the claim re fhtm at this time?

Hi Jess,

Yes, please file a complaint about your experience at ftc.gov/complaint.

It seems Herbalife perfectly fits the description provided here of what an illegal "pyramid scheme" is. How can this be if Herbalife is a long-standing publicly traded company? Why hasn't the FTC shut down Herbalife if by it's own definition it is a "pyramid scheme?" Does it get a pass because they have hired former FTC officials?

It's well past time that both herbalife and amway get shut down by the FTC. They're very thinly veiled pyramid schemes that require an endless-chain of new distributors to invest-and-leave.

Herbalife will tell you on their own disclosures that the churn rate is very high for distributors with the majority staying on for less than a year. These people buy in, load up, lose out and quit. Some look into product returns, but due to certain herbalife rules (such as rule 10-d) you cannot return product if you'd been buying without 70% retail sales or 10 customers per month and have been inventory loading. (the 10-d requirement is right on the repurchase form).

This means that by letter, herbalife says, "you cannot inventory load" but all of their top distributors will tell you (and even say on video) that you need to get those 2500VPs up front so you can get the bigger discount, then you're in business.

Herbalife will tell you it's not their fault what individual distributors do because they're effectively contractors with the company and herbalife cannot force compliance. But without that endless chain, herbalife would just be an overpriced shake company.

I'm so thankful for this FTC dialogue. It's simple folks. We must stop trying to complicate this. I will explain based on my personal experience.

I have an MLM business. I have 36 "customers" who utilize my company's MLM services every month. NONE of these "customers" are in my MLM business as a TEAM MEMBER...NONE OF THEM. They simply "buy" through my MLM business each month. The same way people "buy" from a McDonalds franchise owner each day/week/month.

My wife is on my MLM Team. She has 15 "Customers" that utilize our company services every month. Once again...NONE OF HER CUSTOMERS are on/in her MLM Team.

Last example.
Our two son's are also on my MLM Team. Between them they have 48 "Customers" that utilize the company services through them each month. NONE OF THEIR CUSTOMERS ARE ON/IN their MLM team.

Whenever someone tries to show me their MLM opportunity I simply asked them - How many "Customers" bought your products directly through you this month - last month? The most common answer I get is "one, two or none". Then they tell me they made $3000, $5000 or $9000 last month.

They didn't sell anything - but they made money.

Right.

I am also part of a MLM company. In our company there is a very definite product that we all want to use. That being the case it makes no sense for me to pay for retail price when I can simply have a wholesale membership and purchase at a discount each month, just as I might get a discount at Costco or another warehouse type club. As a wholesale member, it is also my option to share what I use and help others get their own accounts. They are never required to make additional purchases unless they earn a commission check, nor do I pressure them to build a business. They are helped to achieve whatever their goals may be. I personally do not make many retail sales because the people I know want more product than one or two bottles. Financially it makes more sense to get a full set. There is nothing wrong with making money from such a set up - and we have people who make a lot of money doing so each month, but those people truly work hard to teach and support others in their use of our product. Overall though I'd rather support my group in something I know benefits them than give my money to a corporate entity that sells products I hated using but did not always know there was an alternative option for

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