Here’s how to tell when multilevel marketing is a pyramid scheme

Federal regulators said complaints against multilevel marketing companies have surged during the pandemic as more people seek new ways to work from home, affiliate WFXT reported.

[ALSO READ: Pair accused of running Ponzi scheme with investment company make first court appearance]

Multilevel marketing is a controversial business model where people make more money by recruiting more people to sell products.

Action 9’s Jason Stoogenke explains how to distinguish multilevel marketing from a pyramid scheme.

They tell people they can be their own bosses and work from anywhere and that’s a perfect hustle to build top-selling residual income.

Multilevel marketing is a billion dollar industry and one of its selling points is that it’s easy to make money.

Jody Chase said she was one of Pure Haven’s best earners.

“It’s not easy,” Chase said. “It should be simple but not easy. It takes work. »

Chase said she could make between $15,000 and $20,000 a month because she had about 2,500 people under her selling products.

“It’s entrepreneurship at the heart of what it is,” she said.

Of the 2,500 vendors, Chase said about 10 earned a living income.

Chase said the business model isn’t about creating six-figure incomes, but rather “thousands of aires” or people earning between $300 and $1,000 a month.

People can make money in multilevel marketing in two ways.

They can sell the company’s products to customers themselves.

[ALSO READ: Man, woman face federal charges in connection with massive healthcare fraud]

They can also recruit new distributors and earn a commission based on what new sellers buy and sell, which is controversial.

Recruits and the people they recruit are part of the best person’s sales network.

“What MLMs make it look like on the outside is not at all what it is on the inside,” said Jessica Hickson, former multilevel marketer.

She has a large following on YouTube, where she warns others against multi-level marketing.

“The problem is not the people who make all the money. The problem is the hundreds of thousands of people below them earning nothing,” Hickson said.

The FTC says there are ways to spot an MLM that is really just an illegal pyramid scheme:

  • Your income is based primarily on the number of people you recruit, not the amount of products you sell

  • You are encouraged or even required to buy a certain amount of products at regular intervals, even if you already have more inventory than you can use or sell

  • You must purchase products before you are eligible to get paid or obtain certain bonuses

  • You have to pay repeated fees for other items, like expensive training sessions or marketing materials

  • Promoters make outlandish promises about your earning potential

  • Promoters emphasize recruiting new distributors for your sales network as the real way to make money

  • Promoters play on your emotions or use high-pressure sales tactics, perhaps saying you’ll lose the opportunity if you don’t act now and discouraging you from taking the time to research the business


The FTC also has a list of questions you can ask current and past sellers about their experiences:

  • How long have you been in MLM?

  • How much money did you make last year, after expenses?

  • What were your expenses last year?

  • Have you borrowed money or used your credit card to fund your business? How much did you borrow? How much do you owe?

  • Do you need to have recruits to earn money?

  • How many people have you recruited? How many did you recruit last year?

  • How many of your recruits have left the company?

  • What percentage of the money you’ve made comes from selling the product to customers outside of MLM?

  • What percentage of the money you made (income and bonuses minus your expenses) came from recruiting other distributors and selling inventory or other items to start?

  • How much time do you devote to the business?

  • How much inventory did you buy from MLM last year? Have you sold all your inventory?

(Watch the video below: A pair accused of running a Ponzi scheme with an investment firm make their first court appearance)

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