Pyramid Schemes Disguised as Multi-Level Marketing Businesses (MLMs)

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Pyramid schemes are fraudulent businesses where participants are paid to recruit others. They’re often disguised as multi-level marketing businesses, or MLMs. Identifying the signs of a pyramid scheme can help you avoid losing your investments.

Here's How a Typical Pyramid Scheme Works

The Scheme

Someone contacts you with an enticing offer. They claim you could make money quickly by purchasing a starter package, and promise immediate guaranteed payouts. These payouts are unrealistic, and only meant to spur you into the scheme. Mandatory high-priced starter packages are hallmarks of pyramid schemes, and sales pitches usually promise higher payouts if more money is paid up front.

The Product

Either partially or completely irrelevant. The promoter spends little time explaining the product, because it is secondary to the overall scheme. Schemes include internet service products, mobile marketing platforms, applications, cloud computing services, and voice-over-internet applications. Any unsold product purchased by the investor is rarely returned to the company. Instead, promoters encourage investors to recruit other people to sign up and purchase the starter package.

The Pitch

Promoters claim that you can make money with minimal effort, through making referrals or inviting others to presentations.

How Money is Made

From recruiting others to purchase the package, NOT from product sales. Pyramid schemes disguised as fraudulent MLMs pay earlier investors with funds from later investors. Also, actual payouts fall far short of the guarantees.

Who is Targeted

MLM frauds usually involve false identities, and can spread quickly through word-of-mouth.

Questions? Contact us for further guidance.