In recent years, the SEC has filed charges to stop a pyramid scheme disguised as an MLM program. The company, called CKB, has attracted investors from around the world and has been particularly focused on the Asian-American communities of New York and California. If all Ponzi schemes fail, why would anyone invest in them? There are three basic categories of people who invest in Ponzi schemes: those who participate out of greed; those who are misled into thinking they are joining an “investment club” or “gift program”; and those who believe the products or services are legitimate. However, some Ponzi schemes disguise themselves as MLM. The Federal Trade Commission warns people to take note and avoid MLM promoters who: Although pyramid promoters claim that the possibility of winning is endless, this possibility cannot be realized due to market saturation. For example, if a program starts with one person recruiting two people, each of them recruits two more people, and so on, virtually the entire population of the United States – every man, woman and child – would be involved in just 28 levels, as shown below. In a typical Ponzi scheme, new investors must pay a fee for the right to sell the products or services, as well as the right to recruit others into the pyramid to receive rewards unrelated to sales of products or services. Very often, the products or services that the victim has to buy are not for sale and the promoters of the pyramid refuse to buy them back. On the other hand, legitimate multi-level marketing companies buy back unsold products, although often at a lower price than the initial price. While a Ponzi scheme may seem tempting, it is not sustainable. To illustrate, suppose an initial recruiter develops a Ponzi scheme that requires each member to recruit nine new members.

Under such a system, the number of members required to maintain the pyramid at level 9 would be 387 million or more than the population of the United States. The following table shows the number of members required to maintain the pyramid at each level: In a Ponzi scheme, you are often encouraged or even asked to buy a certain amount of products at regular intervals, even if you already have more inventory than you can use or sell. If you decide to become a distributor, remember that you are legally responsible for any claims you make about the company, its product, and the business opportunities it offers. This is true even if you`re just repeating claims you`ve read in a company brochure or flyer. If you decide to recruit new distributors, know that you are responsible for any claims you make about a distributor`s revenue potential. Make sure you present the opportunity honestly and avoid unrealistic promises. If these promises fail, remember that you could be held accountable. If you`re looking for a multi-layered marketing opportunity, you should educate yourself about market saturation and determine saturation levels in your sales territory.

Legitimate companies don`t have too many distributors in one area. Multi-level marketing (MLM) is a legal business program. This business model involves the sale of real goods or services by dealers or MLM participants. Distributors are paid for the MLM products and services they sell. They may also receive revenue from sales from the distributors they have recruited and from the people who then bring in those recruits. LexisNexis® and Bloomberg Law are external online distributors of ALM`s extensive collection of current and archived versions of legal news publications. LexisNexis® and Bloomberg Law clients may access and use ALM content, including content from the National Law Journal, The American Lawyer, Legaltech News, New York Law Journal and Corporate Counsel, as well as other sources of legal information. Ponzi schemes are doomed to fail because their success depends on their ability to attract more and more investors. Since there are only a limited number of people in a given community, all Ponzi schemes will eventually fall apart.

The only people who make money are the few who are at the top of the pyramid. Pyramid schemes do a great job of building communities. They do this by hosting conferences, seminars, and reward parties for top performers. Mary Kay encourages consultants to perform well by offering a cruise ticket with other top performers. Lectures and seminars are energetic and fun; The consultants are happy to come to them. Award events, such as cruises or vacations, give advisors time to interact with like-minded people and have fun. A company`s claims that its plan has been “approved” by the Michigan Attorney General should be red flags, and you should immediately report such a claim to our office. A company that distorts one fact is likely to distort others. While our office can tell you if we have taken legal action, we will not comment on specific investigations against multi-level marketing companies. In addition, we do not offer prior approval for a business, and if you want legal advice on whether a tiered marketing opportunity is in fact an illegal pyramid, you should consult a private lawyer. “Multi-level” or “network” marketing is a form of business that uses independent agents to sell products or services to family, friends, and acquaintances.

A representative earns commissions on retail sales he makes and on retail sales made by others he recruits. Examples of well-known multi-level marketing companies include Amway and Mary Kay Cosmetics. Most people who join legitimate MLMs earn little to no money. Some of them lose money. In some cases, people believe they have joined a legitimate MLM, but it turns out that it is an illegal Ponzi scheme that steals everything they invest and puts them deeply in debt. Pyramid schemes focus on recruiting new members. It is rare that the sale of a product or service is actually involved, even if it was implicit to attract recruits. There is no identifiable source of income other than that which comes from the people hired. Legitimate multi-level marketing companies, on the other hand, may have been around for a long time. While recruiting additional investors is an essential part of marketing practice, since legitimate multi-level marketing companies involve solid products or services, participants in these companies are not subject to significant losses. If you`re considering joining an MLM, be aware that some MLMs – even those that aren`t pyramid schemes – may not be a wise investment. Other MLMs may not fit your interests and lifestyle.

Here are some tips to protect yourself from a bad MLM experience. Ponzi schemes are not only illegal; It is a waste of money and time. Because pyramid schemes rely on recruiting new members to make money, schemes often collapse when the pool of potential recruits dries up (market saturation). If the plan falls apart, most people, except for a few at the top of the pyramid, lose their money. The multi-level pyramid structure of the hierarchy is NOT the place where we will learn marketing strategies. Don`t be an idiot. Treat and pay your employees fairly. Don`t abuse your authority over customers. What we will learn from MLMs and Ponzi schemes is the psychology used in companies.

MLMs offer products and services to consumers through direct sales channels. Under the pyramid structure of an MLM, participants sell both the product or service and new members to the sales team. As each MLM participant expands their team, each level continues to grow – from one person to level one to three people to level two, and then nine people to level three. MLMs have a similar structure to Ponzi schemes, but with the main difference that an MLM is considered a legitimate business and a pyramid is a fraudulent scheme. Understanding this difference is paramount for investors. If you`re wasting money buying ads that get bulk impressions, you`re not investing wisely in your marketing. Impressions don`t matter if listeners don`t need your services.