Pyramid Scheme or MLM
A pyramid scheme is when people are buying a product to get into the "deal" and there is no intention of making a market for it. Pyramid schemes usually advertise as "get rich schemes" and other statements such as
From my experience with pyramid schemes, this is how I would describe the process. An example of a pyramid scheme would be: I buy a product and sell it to you for $5, you in turn resell the product to someone for $10, and down the line, the product goes. Each additional person continues to raise the price. In the end, let us say that Number 10 bought the product for $100 and is not satisfied, he complains to Number 8 and up the ladder all the way to Number 1. Number 1 then tells Number 10 that the product wasn't meant for use but for selling! Here lies the pyramid scheme.
The distributor sells and the purchaser buys just to get into the deal. There is no intention to continually market the product. The distributor sells it one time.
A pyramid scheme is a not a direct selling plan. MLM (multi-level marketing) is direct selling which involves a product. True multi-level marketing involves selling a product that is worthwhile both to the distributor and to the purchaser. In addition, MLM involves a network of people (distributors) working in your group (also referred to as down line). The more people in your down line the more profit you make. You make a certain percentage of your down line distributor's sales.
MLM success is not a get rich quick scheme as so many advertisements claim. The success of your MLM business depends on your patience, persistence, and the real world market demand. However, with due diligence and belief in your product you can be successful in a MLM business.
Although this article is a few years old, the scams are still around. Be careful when selecting a MLM business and watch carefully for pyramid schemes.
Press Release
June 7, 1999
Pyramid Victims Nailed ---
According to the Los Angeles Times, three victims who lost money in a major pyramid scheme that was busted in Hollywood last month, have been charged with operating their own scam in Ventura County. Their pyramid program, "Go-4-Success", required investors to put up $2000 with the chance of making thousands of dollars on a weekly or monthly basis if enough other investors participated.
After receiving a tip, detectives posed as potential investors and arrested the trio. They have been charged with operating an "endless chain" which is a felony. The suspects claim theirs was a legal business because investors received a camera, travel vouchers, and a telephone calling card. Sheriff's deputies explain that the scheme is illegal because it requires an endless stream of investors.
The Times article says that the three men allegedly contrived their plan after they had invested $6,000 in the Family and Friends Social Club, a huge pyramid scheme that ended in a police raid. See related article from April 27, 1999.
Original Source: Los Angeles Times, June 7, 1999
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