There often seems to be a fine line between MLM (multi level marketing / network marketing) and pyramid schemes. It is very important to know the difference. Why? The opportunity to earn an income and build a legit business with MLM is real. When it comes to pyramid schemes, however, the likelihood of making any money is nonexistent and for that reason Pyramid Scheme Companies are illegal.
Let ‘s have a look at how to spot a pyramid scheme and how to avoid them too!
How To Spot A Pyramid Scheme
If the following signs are evident, you are dealing with an illegal pyramid scheme:
- Revenue generated (and income earned as a result) is based on how many people you recruit, and money those new recruits are required to pay to join the company (see point 2 and 3 below).
- As part of joining the scheme, you are obliged to spend money on stock.
- You are compelled to purchase other things you do not need, in order to stay in good relationships with the company. These items can be product, sales & marketing material, merchandise etc.
TEDEd Talk On Pyramid Schemes
Here is a 5-minute video about Pyramid Schemes by Stacy Boslie speaking about Vemma Nutrition, it’s interesting, have a listen.
Who Makes Money In A Pyramid Scheme?
Lets go to our trusty friend, Wikipedia to answer this question – that way you know it is not my own bias leading this article:
“People in the upper layers of the pyramid typically profit, while those in the lower layers typically lose money. Since most of the members in the scheme are at the bottom, most participants will not make any money.”
The biggest and most important sign: You Are Highly likely To Lose Money Should You Sign Up With A Pyramid Scheme.
Are Pyramid Schemes Illegal All over The World?
This is an interesting question and is easily answered by Wikipedia too, here is the answer as found online:
Pyramid schemes are illegal in many countries or regions including Albania, Australia, Austria, Belgium, Bahrain, Brazil, Canada, China, Colombia, Denmark, the Dominican Republic, Estonia, Finland, France, Germany, Hong Kong, Hungary, Iceland, India, Indonesia, Iran, the Republic of Ireland, Italy, Japan, Malaysia, Maldives, Mexico, Nepal, the Netherlands, New Zealand, Norway, Peru, Philippines, Poland, Portugal, Romania, Russian Federation, Serbia, South Africa, Singapore, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, Ukraine, the United Kingdom, and the United States.
For ease of reference, I have taken a snip of the map as provided on Wikipedia:
This maps reveals that not every country in the world has criminalized pyramid schemes. How sad it is to see countries in the poorest regions affected – South America and Africa!
Who Is Vulnerable To Becoming Involved In Pyramid Schemes?
Now this is where I get really angry. My heart aches for the poor, the marginalized and impoverished. The challenge with poverty is often a lack of education. What comes alongside can often be a desperation to make money. Lets face it, if you do not have food to eat and feed your loved ones, you will be open to opportunities that are sold to you as a way to change lives.
Those who are the most vulnerable are those in need and who do not have the education or life skills and knowledge to keep them safe from the clutches of illegal pyramid schemes.
Looking again at Wikipedia, there is a section entitled “Notable Recent Cases”, this case really caught my eye:
“In March 2017, Ufun Store registered as an online business for its members as a direct-sales company was declared operating a pyramid scheme in Thailand. The Criminal Court handed down prison terms totaling 12,265 to 12,267 years to 22 people convicted over the scheme, which conned about 120,000 people out of more than 20 billion baht.“
Look at how many people were conned – 120,000 people! Out of more than 20 billion baht!!! Mind-blowing numbers. The country was Thailand and the criminal court there is known not to be lenient, look at the prison terms – 12,265 to 12,267 years to 22 people convicted! If we take the number of years at 12,265 over the 22 people convicted, that is an average of 557 years per person. Thailand certainly does take Pyramid Scheme operators seriously.
There are loads more listed on Wikipedia – and that is just one source. The FTC also publishes information on their site about Pyramid Schemes.
Advice Offered By The FTC
Advice offered by the FTC is well worth taking note of. The FTC is the Federal Trade Commission and their role is to protect consumers by regulating unfair, deceptive or fraudulent businesses practices, and by promoting fair competition.
This is what the FTC says about how to spot and avoid Pyramid Schemes:
“1. Make sure your income is based on sales to the public and not on what you have to buy yourself, or the number of people you recruit
2. 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.
3. Exercise doubt. Even if a company sells products or services you’re familiar with – or boast celebrity members – it may not be legitimate.”
What To Do If You Are Victim To A Pyramid Scheme?
I do not profess to be an expert in this but my expectation is that the FTC is worth approaching should you fall victim to a pyramid scheme.
They have listed many cases on their website about refunds of multiple millions to individuals who have lost money. You can view the names of pyramid schemes and the amounts of money awarded on their website. I found reams and reams of them by searching on the FTC site “how to spot a pyramid scheme”, have a look here for just a few:
Seems to me that it would also be a great idea to do your research on the FTC site for companies who have already been charged with operating as Pyramid Schemes. This would be a great way to keep yourself safe.
As they say, “knowledge is power”.
What Is The Difference Between A MLM & A Pyramid Scheme?
There seems to be some gray area here, that is my opinion at least. From what I can see, there are companies who operate under the banner MLM but also bear the hallmarks of Pyramid Schemes. It is difficult to tell them apart at times. The basic differences are as follows:
- MLM – members generate an income from selling the products
- Pyramid Scheme – members generate an income from recruiting other members.
The reason I say that there are gray areas here is because I have yet to encounter a MLM company who do not require you to recruit a team or downline. I stand to be corrected, but I think there is a lot of smoke and mirrors involved.
To keep yourself really safe, I would only go for an organization where an income can be generated by selling products or services. If you need to recruit a team, that should be an additional income stream, not the main driving force of your business.
What Is A MLM?
I wrote a detailed article about the differences between Affiliate Marketing and MLM, here is an excerpt from that article regarding MLM, you are welcome to click through to the article and read it in more detail:
As you can see from the above article, there is much information available online about the difference business models. Certainly enough to help us to avoid the known Pyramid Schemes. It is important that we take responsibility for ourselves by doing the due diligence and research on each and every business opportunity presented to us. I encourage you to always research online, just doing a Google, Bing or Yahoo search will come up with loads of information.
Then delve into organizations such as the FTC and look for cases that have been through the processes and been ruled on. Search for the commonalities between the operations of the companies, who the people are behind the organizations – the expression “a leopard never changes its spots” should be taken seriously. If you see a name that sounds familiar, the chances are that it is the same individual starting up yet another dodgy company.
A Legit Opportunity
If you would like to consider a legit opportunity to create your own online business, (not sign up with a MLM or Network Marketing or Pyramid Scheme) I encourage you to have a look at this quick review I have written, The Skinny On Wealthy Affiliate.
I am learning everything I need to know about my online business with Wealthy Affiliate and can vouch for the platform. I joined in October 2018 and have grown so much as an individual and online entrepreneur.
If you have what it takes to become an entrepreneur and are willing to put in the hard work to build your own business, I invite you to join me by taking advantage of the FREE Starter offer below (by the way, having a good look inside any opportunity for free is a great way to know that you are considering a legit opportunity – nothing to hide).
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If you have any comments you would like to share with me, please go ahead in the comments section below. I love hearing from you!