Pyramid and MLM Scams

by David Tinney

Many people ask me for my opinion on various MLM companies whether they are viable or not as an opportunity. My advice is "beware" and be informed before any money is put on the table. I'm offering this page as an overview and resource.

A pyramid scheme is a fraudulent system of making money which requires an endless stream of recruits for success. Recruits (a) give money to recruiters and (b) enlist fresh recruits to give them money.

A pyramid scheme is called a pyramid scheme because of the shape of a pyramid: a three dimensional triangle. If a pyramid were started by a human being at the top with just 10 people beneath him, and 100 beneath them, and 1000 beneath them, etc., the pyramid would involve everyone on earth in just ten layers of people with one con man on top. The human pyramid would be about 60 feet high and the bottom layer would have more than 4.5 billion people!


In very short order, 10 recruiting 10 and so on would reach 10 billion, well in excess of the earth's population. If the entire population of earth were 5 billion and we all got involved in a pyramid scheme, the bottom layer would consist of about 90 percent of the planet, i.e., about 4.5 billion people. Thus, for 500 million people to be WINNERS, 4.5 billion must be LOSERS.

Tips to Avoid the Scam

Plans that promise profits mainly for recruiting new members are illegal pyramid schemes. In legitimate multilevel marketing plans, profits come primarily from selling goods and services to consumers.

Be cautious about emails for money-making opportunities. Most unsolicited emails are fraudulent.

Be aware that some pyramids are disguised as ďgifting clubs.Ē New recruits give money to current members with the promise that they will receive money from future recruits.

Know that all pyramids are doomed to collapse. Thatís because itís impossible to keep on getting fresh recruits who will pay to participate.

Legitimate multilevel marketing plans only succeed if they offer products or services that customers want. All successful businesses depend on repeat sales. If there isnít constant demand for the products or services, the business will fail.

Sales to other distributors donít count. Legitimate multilevel marketing plans arenít based on sales to distributors. Profits should come from sales that you and any distributors under you make to the end-users.

Be wary of big earnings claims. No one can guarantee how much youíll make. That depends on how hard you work and whether consumers like your products or services. Many people who work in multilevel marketing do it part-time to supplement their other income.

Check it out before you commit. Print out all the information, and contact your state or local consumer protection agency for advice. In some states, multilevel marketing companies must register with the government and comply with other requirements.

Donít buy more supplies than you need. Some fraudulent companies try to force distributors to pay for more products than they can reasonably sell.

What's Wrong With Multi-Level Marketing by Dean Vandruff

1. MLMs are "doomed by design" to recruit too many salespeople, who in turn will then attempt to recruit even more salespeople, ad infinitum.

2. For many, the real attraction of involvement in multi-level marketing is the thinly veiled pyramid con-scheme made quasi-legal by the presence of a product or service.

3. The ethical concessions necessary to be "successful" in many MLM companies are stark and difficult to deal with for most people.

4. Friends and family should be treated as such, and not as "marks" for exploitation.

Resource for more information about pyramid and MLM scams.


Sidenote: I have personally vowed not to be involved in any further MLM companies in the future. In the past, I was involved in two and lost my investment and the people I advised to enter lost their investment as well. None of us made a significant amount of money contrary to the claims of our sponsers.



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