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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

Nice to see someone doing it right. I'd be pressed to ask what it is you're selling that has such a high interest in the consumer market? Keep it up. That's how MLM can work, without all the hype and fluff.

is primitive development a scheme?

Your post very informative

I have a hard time understand why there is no sense of urgency in closing down these MLM frauds. The endless chain of recruiting, FTC take your responsibility and make it end. It's a disgrace.

"FTC announced a settlement with Fortune Hi-Tech Marketing, a company that operated an illegal pyramid scheme disguised as a multilevel marketing program".

Aditi – thank you! I am so sick of hearing this referred to as "The FTC has shut down the multilevel marketing company Fortune Hi-Tech Marketing for operating an illegal pyramid scheme." Finally, somebody gets this right!

Many MLM's are pyramid schemes disguised as a MLM program. Herbalife is a good example.

Hey let's all use this mediocre soap so we can get paid all the cash that would have gone to the local store for carrying the item. Free monies everywaaaaaaaaare.

PLEASE look into "Nerium"! Biggest Pyramid scheme going and are recruiting morons at an alarming rate with "rags to riches" promises! It is VERY impressive how they manipulate their sales people but sad when they realize a year later they never really get the bonus or the car or the commission! They need to be shut down! It's Capitalism at it's worst!

AGREE.. Its a scam. They encourage people to recriut other people in order to "earn" (its just a leasing contract) a Lexus car instead of encouraging people to sell their products as retail.

Seriously - do something about these MLM rackets. I read on a comments board from an Herbalife troll that literally said she makes great residual income renting a conference room, getting a few of her insider friends to give fake income testimonials to distributor attendees that pay to hear these garbage lies because due to Freedom of Speech it is not illegal and the complainers just need to "suck it up". How is it that most of the general public knows these are scams aimed at the unsophisticated but yet our own government bends over backwards and frontwards to allow them to keep it up - great job (not)!

So all MLM's have distributorships and you get paid based on volume on a downline. So here is my question, when the FTC says:

"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"

How do we interpret this? For example, with some MLM's, you don't get paid directly on the people you recruit, but you do make money based on your recruit's sales, which are mostly to the public?

taken this from the previous comment - "Some MLM's, you don't get paid directly on the people you recruit, but you do make money based on your recruit's sales" the recruits sale is mostly a self purchase than the sales to the public. which in turn is nothing but pyramid scheme. eventually you are forced to consume more goods for yourself that you really do not want.

If it seems to good to be true it probably is........the rich are always looking for new ways to take the working class money.....and you all are only to eager to give it to them!!!!!!

All MLM companies have the same basic true formula. Only 1-3 % actually make money. The rest are collateral damage in a war for leveraged team efforts. Those who are bitter, need to be honest, did u change yourself to become a leader, or did u quit within 7 days of trying, so now your bitterness comes out. I personally know three people earning over $30 000 pm, for over 5 years. but they crunched numbers, and breeze thru rejection after rejection. MLM makes normal sales look like a piece of cake. You can take the best car salesman, and he will fail at MLM, unless hes coached properly. I was a victim of ZEEK rewards. I lost $4000. the claim is still pending 3 years on. I learned from it. I moved on. Dont hate just cos you ignorant. Be honest, MLM is about learning to love being in a discomfort zone. It should also be one of your income streams, not your only method of making money. I suggest business as well, or full time job until your passive income equals your fixed expenses. If you have kids and a wife, then keep both incomes.

There is a principle in writing circles called Yog's Law. It states that in legitimate publishing all money flows towards the author. If an author must pay a publisher to be "published", it's a scam.

Same with any home business. If YOU pay THEM for your job, you're being scammed.

People, please don't waste your time and money. ALL MLM's are pyramids disguised in companies. They will ALL eventually fail.
They feed off of uneducated people until it implodes.

Can any body tell me about Amway?

Sure can. Why do you ask?

So if you exchange money for products you want at a discount for self consumption or resale its a pyramid scheme. No that is not true.

This is any company like Herbalife or Isagenix: You’re forced to buy other things you don’t want or need just to stay in good standing with the company

If you want to test a MLM company just compare it to Social Security. If it's identical then it's a pyramid. If the people who are collecting are dependent upon the people paying into it... Pyramid! Social Security isn't illegal is it?

The problem with this logic Is that ALL businesses Would be considered pyramids. EVERY business has people on the inside relying on people who pay into it (customers). In fact, the common "Guy at bottom does all the work / Guy at top makes all the money" Comment applies to any business with more than 5 employees - not just Mcm companies. The clerks and factory workers handle most of the work while the CEO makes most of the money. If that is the standard for whether a business is legitimate or not, then no business would be legal or legitimate.

A friend of mine told me she lost almost $3000 on Herbalife. She was lured into the scam when she first came to America. She was very ashamed of this experience when she admitted that. I believe the majority Herbalife victims are ashamed to mention it after they lose money.

Has anyone looked into Stream/Ignite? I recently watched one of their training videos where the instructor specifically said the goal was not to get customers, but to get more people buying into the business? How is this company allowed to operate?

Does anyone know anything about LIFE Leadership and if it is a pyramid or true MLM company?

Does anyone know anything about LIFE Leadership?

Does anyone know anything about Nerium?

Its a scam. They encourage people to recriut other people in order to "earn" (its just a leasing contract) a Lexus car instead of encouraging people to sell their products as retail.

Pls some one should run a check on divine-partners for me. Its a mlm that network tablet pc for as low as 6000# in Nigeria

If you want to report a scam, go to FTC.gov/complaint. You can provide information about the company, what it promised, and what you got. The information you give goes into a database that law enforcement uses for investigations.

I went to a HLF nutrition club training event in September 2015. The whole process was on how to recruit more downlines under you and work for you, that HLF opportunity is a generation to generation business opportunity that one can pass his HLF royalty override payment to his next generation. It used a few HLF chairman clubs success stories to explain how HLF opportunity can lead you to a luxury life style that one can only imagine. The coach and three ladies there claim they each made between $70k to $100k income from HLF last year.

People there also said HLF products only make your disease symptoms go away, because HLF shake give you cellular level nutrition therefore one can achieve maximum health and living free of any kind of disease. I have a recorded video for the event.

Is HLF a pyramid scheme?

You have made this comment on a lot of message boards where you are known as a proven liar with a short position in the stock.

Yes it is and why they are still allowed to operate is a crime.

Ummm. Isn't any business passable to your children? Does that make me royalty by your definition since my mom owns a glass shop? Sir, I'm not sure, but you may be an manipulation artist.

Appreciation for this posting and also sharing them.

I was wondering if anyone has ever heard of the Motor Club of America(MCA)? Supposedly it's a motor club membership u pay, plus a low monthly fee, and the more referrals supposedly= the more residual income, and so on and so forth. Help me please.

It looked scammy as hell when I looked at it.

How did it look Scammy?

What about the National Wealth Center(NWC)?

Does anyone know anything about L-dara?

Is FES (Financial Education Services) a scam

Please stop looking to others for your answers. Find what a credible source has to say, such as, the Federal Trade Commission. Ask questions of the opportunity, and cross reference the information. Don't allow your biased to cloud your judgement, and don't allow others to make decisions for you. MLM can be a fruitful endeavor for some, but please do your homework and keep in mind sales is a tough business. Also there is no such thing as a get rich quick method to life. Anyone selling that idea is a liar.

In that case, all these Amway Diamonds and other recruiters ARE liars. Telling people they can retire in as little as 2-5 years IS a get rich quick scheme. Only 5% of products sold are to outside customers. The distributors/IBOs ARE the customers. They're the ones constantly buying products in order to stay active. Almost nobody outside of Amway wants their ridiculously overpriced goods. In fact, that's how pyramid schemes like Amway, Herbalife, and Mary Kay stay legal. They hide their pyramid structure behind the sale of products knowing full well none of the distributors are making money. Only those on the top see any money, and even they've been known to lie about how much they're really bringing in. Plus they hide all the costs that's out of their pocket. Seminars, gas, plane tickets, hotels, all non reimbursable

Tell me what you know about Binary Options that get people to join and then they never get their earnings.

At least the big MLM's like HerbaLife and Amway typically don't leave individual's bankrupt. Online companies like Digital Altitude's Aspire System fleece individuals for up to more than $55 thousand at a time and have almost zero sales outside of distributors. The constant pressure to "go all in" and the price tag are outrageous.

Stay away from wealthyaffiliate. com -- huge pyramid scheme that ticks all the boxes.

1) No product, your money only derived through getting other people to subscribe to wealthy affiliate pyramid scheme scam

2) The wealthy affiliate pyramid scam requires to purchase ongoing subscriptions yourself, and other extras.

3) The entire "program" to educate you is only how to sell others on subscriptions to the wealthy affiliate scam.

3) Plenty of people posting rags to riches stories about the wealthy affiliate pyramid scam -- lots of images of "people" reused all over the web. Same stories, etc.

Is anyone familiar with Kyani? Im having a hard time gettig people to even try it because of fear of pyramids.

Is MCA/FVT a pyramid scheme?

Does anyone know about the Prime My Body? Looks like another pyramid scheme scam..

Keep in mind that just because something isn't a pyramid scheme doesn't necessarily mean it's a good idea.

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