Spotting an illegal pyramid scheme 101

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Your social media feed is abuzz with stories of people making serious money selling an energy drink. Not one to miss out an opportunity, you do a quick search and come across a viral video. The guy making the pitch insists you can make thousands of dollars a month. “Forget working 9 to 5. Join the Young People Revolution!” he says. You think to yourself, “I’m young people! And I can totally get on board with a revolution.”

Slow your roll, my friend. Before you shell out a wad of cash and start making pitches to your friends, you should know that the FTC just filed a complaint against the company behind the pitch. The FTC alleges Vemma is running an illegal pyramid scheme and is targeting college students.

Here are some telltale signs of a pyramid scheme — think of these as “Spotting an Illegal Pyramid Scheme 101”.

1: Recruit, recruit, recruit. If your income is based predominantly on how many people you recruit into the program, not how much product you sell, it’s a pyramid scheme. According to the FTC’s complaint, Vemma’s marketing and training materials emphasize recruiting other Affiliates. In fact, one of the masterminds behind the alleged scheme says Affiliates should focus on recruiting other Affiliates because customers are simply a “byproduct of the business.”

2: Buy our product, lots of it. Many pyramid scheme operations require participants to buy the product or other things to stay in good standing with the company. Vemma Affiliates are told to spend 150 bucks a month on products to stay in the monthly “bonus” pool, according to the complaint. That’s $1,800 a year!

3: Live the lavish lifestyle. The recruitment pitch says you’ll be living in the lap of luxury. It fails to tell you most people in a pyramid scheme lose money. Vemma made promises of luxury cars and travel to exotic destinations, but the company’s own income disclosures tell a different story: 9 out of 10 Affiliates made less than $6,200. And the FTC alleges even those figures are overblown because they don’t take into account expenses like the initial purchase and the monthly purchases.

If you’re tempted by a sales pitch that says you can make money selling products, find out what questions to ask before you buy in.

Blog Topics: 
Jobs & Making Money

Comments

Goes back to the same old saying "if is it too good to be true.......you know what happens. You suffer in your wallet/hard earned cash.

I totally agree with you.

Dear FTC and commenters,

Churn is an omitted word from all the HLF recruiting materials (including the company Marketing Plan Training). For example, If you start the new year with 1,000 and recruit like crazy 1,000 for a doubling of the base, but then on the first day of year two you are back to 1,000 distributors ...

You could look at this in two ways: a) Our base grew 100% b) We lost half our base or more realistically c) we recruited 1,000 which doubled our base and we are back where we started. All these choices are correct in their own way. However, answer C) clearly illustrates that the failure of the blistering recruiting was 100% (or maybe even worse). ?

Do you get it ? The Failure was 100%. This can go on for years, decades, and it has with HLF. This begs the question, what would happen if recruiting were to stop? Hlf has around 4M distributors and loses about half a year (2MM). So under NO recruiting: Yr 1: the 4MM (where 2MM are really the churn) is really just 2MM Yr 2: 1MM Yr 3: 500K Yr 4: 250K Yr 5: 125K HLF could function under these start decreases in memberships.

Thus, recruiting is Everything for hlf. Also, the collapsing membership where 5 get 5 who get five who get five ... forever in hopes of achieving the Passive Income would result in 5 who get 5 less who get 5 less ... So the above progression actually exaggerates membership levels. In a business model that Defenders and Foes both agree can be molded to 'whatever you want it to be' there is great risk to the consumer, the populous, the investors, and even the employees. A clear definition of what is and is not legal is paramount to all parties and blurred lines only allow scammers and the unscrupulous to take advantage. For example, how can Michael Johnson the HLF CEO take home as much or more than the CEO of Disney (where Disney is many many many times fold the size of HLF).

These are business opportunities. To start a business it takes money. If you think running a business is easy then try it,most fail within 3 yrs. If you work it you make money. If u want a job go Federal but don't look down on small business people just because they have a dream to be better than average. National sayers are dream sealers and lazy complainers who slave their lives away for another person's dream of success then they bash them for being successful.

I am trying not to be judgemental, but I can't help noting that your grammar is poor, at best. Perhaps it's just a mobile device that is screwing things up. However, the context of what you are attempting so say is rubbish. Pyramid schemes are NOT worthwile "business opportunities" for anyone except the low down dirty dogs that start them, sit at the top and collect the creame. That is how dreams are crushed. Typically, these types of "get rich" schemes prey on the dreamers, fools, and the un/undereducated. This is why such practices have been deemed illegal in the United States.
It certainly seems as though you are promoting such scams. Shame on you! Either you are a fool or a schemer. Neither is good.

What if it involves a good quality product with a high demand and I am not asked to pay or spend any money whatsoever. I simply place a free ad and then answer calls about it. Is that a pyramid scheme?

This clearly defines the vast majority of Network Marketing and MLM companies running today as scams. I hope people will wake up to what is happening in the business opportunity world.

HA! Whatever you say Ethan....

Agreed. Having tried to sell Mary Kay for about half a year in college, it certainly fits the bill. Mary Kay is clearly a pyramid scheme, though it's somehow managed to squeeze its definition of itself through legal loopholes for ages. The sad part is that so many women struggling to make ends meet - divorcees, single mothers, women without college degrees - turn to Mary Kay as a safe haven where they can connect with other women in the same boat and earn money to support their families from home, only to find out that they're all losing money together and any successes their team does have only benefit their recruiters' recruiters. Not to mention that the Mary Kay company itself does precious little to help its "independent beauty consultants" with sales or marketing, instead treating them as the end customer. It's like "I sold my overpriced products to you, so my work here is done." Except for the annual Pink-washing rallies to convince the women that they're beautiful, strong, and successful or something. Ok, rant over.

You should look into Bonvera

What about the federal reserve and its banking cartel what about Goldman Sachs JP Morgan Banking per pyramid schemes

This guy says everything is a scam on his blog so that he can get more traffic and sell more adspace to the very same companies he says are scams! He's a ripoff artist! Take what he writes with a grain of salt!

Good catch. Keep up the good work.

What happens that a person who uses your credentials saying that they are from the claim dept. and that the trade was done in London and in order to received any payment we will have to pay a fee. Is that true in any winning case that then victim will have to pay a fee in order for them to release the funds.

If someone asks you to pay before you get a prize, that is a sign of a scam. The FTC has an article about Prize Scams.

To make a complaint about something that happened outside the US, go to ecommerce.gov.  Agencies in 30 countries gather and review those complaints.

If someone is misusing your personal information, Social Security number, or bank or credit card number, go to identitytheft.gov. The site has information about what to do.

If the trade was done outside of the United States is there any way to get it back. Even when all the evidence are all there. That person who scam me for more than $5,000 say that he know longer there. I would like to pursue this and take action so they can close down before more victims fall for their scheme. Example: After the purchase I found out that they are in Gibralta owned by chelestra Limited. I don't know what to do . The commissioner at your dept, say that it is slim to non. With knowledge and the know hows to get around this in getting my money I'll be so greatly appreciated.

Just like Cookie Lee did what a farce

Please investigate itworks! I've had health reactions to their products and it is run the same way.

You can report a problem with a product to the FTC. Go to ftc.gov/complaint and enter the information. It will go into the database that law enforcement uses for investigations.

Blog comments don't go into the database.

Thank you for sharing this important information with us, really helpful. Scams are now part of our routine life. Fraudsters are become more technical and professional now and they know where your soft link is and from where they can easily convince you and took advantage. Their main motto is to make money easily and this is only possible when they plan something fishy. The problem is, we also want to make money and because of that we fall for big and small scams on internet or any other place.We need to be aware of these scams and from the scammers too. Don't Fall!

I just got one of those emails.

So while not explicitly stated we are talking about WALL STREET.IT SURVIVES ONLY WHEN NEW LOSERS ARE BROUGHT INTO THE FOLD TO BE KAPITALIZED ON.

After many years of seeing and being pitched this sort of junk, (I work in the Entertainment/Carny business) I'm sorry to see it still happening. THIS DOES HAPPEN folks, it has just gotten more sophisticated and slick!

A fool and his/her money are soon parted.

They should also look into that scam of a company Altaria International with their NEON energy drink pyramid scheme.

You should check into LIMU. I see it plastered all over Facebook.

I just got into Vemma, I wanted to cancel my account because it's still within the 30days. How can you help me cancel it and get my money back? Please help me!?

Because of a federal court order, Vemma is temporarily shut down, so you can’t contact them. The FTC asked the Court to permanently shut down the operation. After the court makes a decision about the FTC’s request, the FTC will update information here.

Please file a complaint at ftc.gov/complaint so we know you did business with Vemma.

Call the Attorney General in your state. I got scammed by Polaris which had a few other names before it. I called the AZ Attorney General's office and they gave me some helpful information and I was able to recover all of my money. Be careful of anyone who suggests that you call your cc to request they increase your credit line. Bad for your credit in the long run.

I was so fortunate I asked a broker about a stock someone was trying to sell me. She said it has no history and seemed too good to be true. I passed on it and it seemed to disappear into the air.

Alvaro, this barely describes what a pyramid scheme is. It just seems like another allegation against Vemma Nutrition being an illegal pyramid scheme(which has yet to be proven in court). If your goal is to educate the consumer about pyramid schemes please do everyone a favor and educate yourself on the Network Marketing industry as a whole and not use an example based off of complaints by a blog (TINA. targeted at a company that hasn't even been tried in court yet.

You'll find more information about the basis for the FTC's Complaint against Vemma in the press release.

At the FTC's request, a federal court temporarily halted an alleged pyramid scheme, Vemma Nutrition Company, that lures college students and other young adults with the prospect of getting rich without having a traditional 9-to-5 job.

The FTC seeks to stop the operation, which earned more than $200 million annually in 2013 and 2014 and has affected consumers throughout the United States and in more than 50 other countries, from continuing as an unlawful pyramid.

I think Isagenix fits this illegal profile. has anyone reported?

i know a company that the consumer should pay every month for products to get commission from his organization . Its legal or not ?

This FTC article has information about multilevel marketing plans.

The article explains what to think about before you get involved in a multilevel marketing plan.

You mean Avon don't u? That's almost a pyramid scheme. It's very similar though

Shut them down for good! Stick it to um!!!

They have already started a new one, since Vemma zyndio Please investigate this one before my parents fall victim again!

If you have a complaint about a company, please report it to the FTC at ftc.gov/complaint. The information you give will go into a database that law enforcement uses for investigations. Complaints from consumers help us detect patterns of fraud.

I was pitched by a close friend about joining Amway some 30 years ago and remember that he had to buy so much product each month to stay of top of the people he recruited to get bonuses. His entire basement was full of stuff. It was ridiculous! His presentation was like someone witnessing for a religion almost. It was rather odd. To his astonishment, I declined the opportunity. When I moved to Houston 20 years ago a vitamin company tried to sign me up, but had no suggestions on actually selling their product, so I figured the people at the top were making money off signing other people up who would buy product. These are two clear cut cases of pyramid schemes - in my humble opinion.

Isagenix requires you to purchase 100 "points" (approx US$140) worth of products each month (via an autoship program) in order to stay eligible for financial bonuses. And all the 'consultants' I ever met were more focused on recruiting and building teams than selling products because that's where the REAL money was. Are we in Egypt? Because I think I see a pyramid.

Tell us more please. File a complaint so FTC can at least investigate. A loved one is Isahypnotized.

many good research people are not be use why,many cheating people many opportunity are miss to the world,why,because of cheat real research people are from low -money people.Because many spend many money for pass years,now he is empty hand,

Duterra, Young living oils. All mlm schemes that even got written letters of warning from the FDA about making false claims. These people go around recruiti g others by making claims of health and wealth thru unproven claims, and mis-information. They seriously need a deep investigation.

scam website are jobrize. / weelyfixpay. are both scam website giving you a link to generate for them on your social media sites and etc and when you get in cash they claim you can cash out $300 its not true when you go to cash out they tell you do a survey after that another to just get to the point you never get the money and the one contact information they have is they email which are suuport-center@jobncash and Admin@jobrize when you send them a letter you receivd this MAILERDAEMON@YAHOO.COM FAILURE NOTICE PLEASE PEOPLE DONT GET SCAM!!!

Thanks for bringing this case against Vemma! They are a predatory company. This is really good work by the FTC. Let's all hope Herbalife is next. Consumers need protection from these kinds of companies. Thanks FTC!

I'm with all of you....but the ones that need to be at the top of the list and tracked like ISIS are the health companies that come out and say, "with your doctors note" use us and you can be healthy AND make a lot of money. Can't you just see whats wrong with that phrase? Advocare, Beachbody, Young Living Essential Oils, DoTerra, Herbalife, Isagenix, are just a few to name that do this crap and the government needs to step in and regulate it or shut it down.

I am ever so happy to see that the FTC has finally caught up to Vemma and shut them down, hopefully for good! I have no qualm with the product, just the way they feed upon young, naïve, college students. BK should have just sold his product in stores like every other company. Instead he chose to take advantage of our children.

Just like with any business there's a right way and a wrong way to do things. Mlm is great if it's done with high levels of ethics and is fair and is about promoting products rather than recruit recruit recruit. Being balanced is good too. 

But just like what the ftc points out there are red flags to look for. It doesn't mean all mlm is this way but it is very good to consider the questions they want you to ask. 

My hope is that this makes people more aware of all these companies that give the industry a bad name, because it puts companies with extremely good tract records in the same boat as others who take advantage of people. 

And that's not fair, but hopefully people will become more educated about this, mlm shouldn't be about making money quick, if you see that being touted RED FLAG. Legit mlm takes months and years to build clientel and a team and is a balanced business focusing on product sales. 

If someone says it's super easy and all you have to do is sign up a few people and sit back, RED FLAG. Legit mlm requires you yourself to promote your business and products and being able to get in front of new people. Depending on the business and company it can be a simple business but not necessarily easy. But what is easy? Work is work and you have to treat it like work. 

Also watch people, what's their tract record with these kinds of businesses. Have they been with a company for 20+ years or have they bounced around from one company to the next touting how much money they are making? Red flag! 

Also people give the industry a bad name if they had been with a company and built up a large network, then they quit and join another company. Watch these people on their social media platforms when they say "ask me how I made 20,000$" this month. Again RED FLAG. That's totally unrealistic and doesn't last. Watch these people they will be in another company a few years later doing the same thing. 

All I ask is people to do their research, there is good mlm companies out there, it's just unfortunate that there's many that give the industry a bad name and don't abide by a high level of business ethics. ‎

First and foremost, do your own research. Any good company out there is focused on getting their products to the end consumer. Products that are a good value and not overpriced.

You should only be buying what you need and use each month, not building an inventory in your garage. I've been with a wellness company for 24 years and love their products. For me it's about helping people and not getting "recruits"

A good business model will always be product focused with commissions payed based on product sales, not sign up fees or recruiting bonuses. There are companies out there that do business the right way, unfortunately, there are more that don't. Be cautious, skeptical, and most importantly, do your own research - don't just believe what someone told you.

What attracted me to my company was the management team comes from Fortune 500 companies, not MLM companies. They are doing business the correct way and slowly building a solid business model that will last multiple generations, not 5 years like most get-rich-quick schemes. It should ALWAYS be about getting quality products to the end consumer - that's the only business model that will work long-term.

Good companies are out there that really do work.

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