Spotting an illegal pyramid scheme 101

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

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