Recognizing a Pyramid Scheme

When looking at a multilevel marketing program, you need to make sure it is not a pyramid scheme. Pyramid schemes are illegal and there are a lot of them out there - especially the ones that are based on Internet products and services.

If the money you earn is based on your sales to the public, the company may be a legitimate multilevel marketing plan. Here are some signs that the company is operating a pyramid scheme:
 

  1. Recruit, recruit, recruit. If your income is based predominantly on how many people you recruit into the program, not how much product you sell, it's a pyramid scheme. According to the FTC's complaint, Vemma's marketing and training materials emphasize recruiting other Affiliates. In fact, one of the masterminds behind the alleged scheme says Affiliates should focus on recruiting other Affiliates because customers are simply a 'byproduct of the business.'
     
  2. Buy our product, lots of it. Many pyramid scheme operations require participants to buy the product or other things to stay in good standing with the company. Vemma Affiliates are told to spend 150 bucks a month on products to stay in the monthly 'bonus' pool, according to the complaint. That?s $1,800 a year!
     
  3. Live the lavish lifestyle. The recruitment pitch says you'll be living in the lap of luxury. It fails to tell you most people in a pyramid scheme lose money. Vemma made promises of luxury cars and travel to exotic destinations, but the company's own income disclosures tell a different story: 9 out of 10 Affiliates made less than $6,200. And the FTC alleges even those figures are overblown because they don't take into account expenses like the initial purchase and the monthly purchases.