Wednesday, December 8, 2010

Signs Of A Pyramid Scheme,1607,7-164-34739_20942-208400--,00.html

Use Common Sense and Consider These Tips

The pyramid scheme disguised as a multi-level marketing opportunity is not always easy to spot, but is just as much of a scam as the chain letter. Here are some tips to consider before participating in a multi-level marketing program:

Avoid any program that focuses more on recruitment of new people rather than the sale of a product or service to an end-user consumer. If the opportunity for income is primarily derived by recruiting more participants or salespersons rather than by selling a product, the plan probably is illegal. Several courts interpret greater pressure on members to sponsor new recruits than to market company merchandise as evidence of an illegal pyramid.

Be skeptical of plans that claim you will make money through continued growth of your "downline" -- the commissions on sales made by new distributors you recruit -- rather than through your own sales of products.

Be cautious about specific income or earnings claims. Many programs boast about the incredibly high earnings of a few top performers ("thousands per week" or a "six figure income"). The reality is that most of the people recruited into the organization are not making anywhere near those amounts and most actually lose money.

Beware when presented with "testimonies" from other distributors. These "success" stories rarely reflect reality.

Be cautious about participating in any program that asks distributors to purchase expensive inventory. There are horror stories of people with a basement or garage full of merchandise that no one will buy.

Make sure the product or service offered by the company is something you would buy without the income opportunity and the product or service is competitively priced. Illegal pyramid schemes often sell products at prices well above retail or sell products that are difficult to value, such as health and beauty aids, new inventions or "miracle" cures.

Never sign a contract or pay any money to participate in a multi-level marketing program, or any business opportunity, without taking your time and reading all of the paperwork. Talk the opportunity over with a spouse, knowledgeable friend, accountant or lawyer. If you feel that you are being subjected to high-pressure sales tactics or are not being given enough time to review the details, go elsewhere.

When questions are raised about pyramids, comparisons may be made to corporations where there is one person at the top who makes the most money. What they fail to state is that corporations do not seek to recruit an unlimited number of employees or pay employees based on recruiting new employees.

Beware when the products or services are simply vehicles for recruitment. The products may be gimmicks and/or overpriced, but even high quality products may serve as a cover for recruitment activities.

Your Responsibilities:

If you decide to become a distributor, remember that you are legally responsible for the claims you make about the company, its product, and the business opportunities it offers. That applies even if you are simply repeating claims you read in a company brochure or advertising flyer. If you decide to solicit new distributors, be aware that you are responsible for any claims you make about a distributor's earnings potential. Be sure to represent the opportunity honestly and avoid making unrealistic promises. If those promises fall through, remember you could be held liable.

If you join a pyramid scheme disguised as a multi-level marketing program, your decision will affect not only you, but also everyone you bring into the program. Many people devote a substantial amount of time trying to market these worthless ventures. Ultimately, if a multi-level marketing opportunity sounds too good to be true, it probably is.


If you have a general consumer complaint, please file a complaint with the Attorney General's Consumer Protection Division at:

Consumer Protection Division
P.O. Box 30213
Lansing, MI 48909

Fax: 517-241-3771
Toll free: 877-765-8388 (online complaint form)