How is a Pyramid Scam Different from “Multilevel Marketing” Schemes?

How is a Pyramid Scam Different from "Multilevel Marketing" Schemes?

Multilevel Marketing Defined

A number of multilevel marketing “business opportunities” have flooded the market in recent years – from at-home work out programs to essential oils, from makeup lines to press on nail color. The Federal Trade Commission states that multilevel marketing (MLM), or “network marketing,” is when: “individuals sell products to the public – often by word of mouth and direct sales. Typically, distributors earn commissions, not only for their own sales, but also for the sales made by the people they recruit.”

Pyramid Scheme Defined

In a pyramid scheme investors earnings come from recruiting new investors. The initial person creating the scheme will recruit other investors, who will then recruit other investors, and so on. Participating in the pyramid schemes will often come with some sort of “investment opportunity,” such as the ability to sell certain products. When investors sell products or recruit new investors, they must share the proceeds with investors higher up on the pyramid structure.

How is a Pyramid Scam Different from “Multilevel Marketing” Schemes?

Pyramid schemes are illegal, multilevel marketing campaigns are not. The difference is that MLM’s operate a legal form of direct selling and offer legitimate products.

An illegal pyramid scheme will promise investors large profits based primarily on recruiting others to join the program, not based on profits from a real investment or actual sale of goods.

Pyramid scheme investors understand that they are earning returns from the recruitment of new participants. MLM investors understand the money they earn is based on sales to the public. A person involved in an MLM or network marketing is earning income from the sale of a product or service. While they may also earn money when they recruit new people, their income is not based solely on recruitment, as they are selling actual products to the public.

While Collar Crime Defense Attorneys

If you have been charged with involvement in a Pyramid scheme, you need the help of an experienced white collar crime defense attorney. Ashley D. Adams is a former fraud prosecutor with the U.S. Attorney’s Office. She has insider experiences to use in your defense. Contact Ashley D. Adams, PLC today (480) 219-1366 to schedule a consultation to discuss your case.