Pyramid Scams
In the classic "pyramid" scheme, participants attempt to make money
solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky high returns in a short period of time for doing nothing other than handing over your money and getting
others to do the same.
The fraudsters behind a pyramid scheme may go to great lengths to
make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to, these fraudsters simply use money coming in from new recruits
to pay off early stage investors. But eventually the pyramid will collapse. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and
people lose their money.
How to Evaluate a Plan
If you’re thinking about joining what appears to be a legitimate multilevel marketing plan, take time to learn about the plan before signing on.
What products does it sell?
How does it back up claims it makes about its product?
Is the product COMPETITIVELY priced?
Is it likely to appeal to a large customer base?
What up-front investment do you have to make to join the plan?
Will you be required to RECRUIT new distributors to be successful in the plan?
Your Responsibilities
If you decide to become a distributor, remember that you’re LEGALLY
responsible for the claims you make about the company, its product and the business
opportunities it offers. That applies even if you’re simply repeating claims you read in a
company brochure or advertising flyer.
Likewise, if you decide to solicit new distributors, be aware that you’re responsible
for any claims you make about a distributor’s earnings potential. If those promises fall
through, remember that you could be held LEGALLY liable.
*The
Bottom Line About Multilevel Marketing Plans*
Multilevel or "network" marketing plans are a way of
selling goods or services through distributors. These plans typically promise that if you
sign up as a distributor, you’ll receive commissions - for your sales and those of the
people you recruit to become distributors. These recruits sometimes are referred to as
your "downline."
Some multilevel marketing plans are legitimate. However, others are illegal pyramid
schemes. In pyramids scams, commissions are based on the number of distributors recruited. Most
of the product sales are made to these distributors - not to consumers in general. The
underlying goods and services, which vary from coins to car leases, s**erve only to make
the schemes look legitimate, which they are not.*
Joining a pyramid is risky because the vast majority of participants lose money to pay
for the rewards of a lucky few. Most people end up with nothing to show for their money
except the expensive products or marketing materials they’re pressured to buy.
Evaluating a Plan
The FTC suggests that you use common sense when evaluating a multilevel marketing
opportunity and consider these tips as you make your decision:
Avoid any plan that includes commissions for recruiting additional
distributors. It may be an illegal pyramid.
Beware of plans that ask new distributors to purchase expensive products
and marketing materials. These plans may be pyramids in disguise.
Be cautious of plans that claim you will make money through continued
growth of your downline, that is, the number of distributors you recruit.
Beware of plans that claim to sell miracle products or numismatic peoducts that promise enormous
earnings later. Ask the promoter to substantiate claims.
Beware of shills - "decoy" references paid by a plan’s
promoter to lie about their earnings through the plan.
Don’t pay or sign any contracts in an "opportunity meeting" or
any other pressure-filled situation. Insist on taking your time to think over your
decision. Talk it over with a family member, friend, accountant or lawyer.