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"Some people confuse pyramid .. schemes with multilevel marketing. ... [U]nlike pyramid .. schemes, MLM's have a real product to sell. More importantly, MLM's actually sell their product to members of general public, without requiring these consumers to pay anything extra or to join MLM system. MLM's may pay commissions to a long string of distributors, but these commissions are paid for real retail sales, not for new recruits."
Now consider how our "wealth distribution program" above works. Which is it, do you think? Pyramid scheme or MLM? Bzzzz ... time's up. All who think it's a classic pyramid go to top of class.
FEDERAL TRADE COMMISSION GUIDELINES
Not surprisingly, U.S. Federal Trade Commission ("FTC") pays close attention to so-called MLM's that are, in reality, nothing more than pyramid schemes. It regularly prosecutes promoters of such schemes, obtaining injunctions and orders freezing assets of promoters to be applied in redress of victims. If you knowingly participate in a pyramid scheme, you too can be named as a defendant in such an action.
Bear in mind that as a distributor (whether you're participating in a legitimate MLM program or an illegal pyramid scheme), you're legally responsible for claims you make about company, its products and business opportunities. It is no defense that you're merely rehashing same old representations made to you by company. The FTC can require you to verify research behind any claims you make. For more on subject of representations and your obligation to be able to back them up, read "Not Just Six Lines ... 65 Characters" at http://www.ahbbo.com/adsftc.html .
In addition, if you solicit new distributors, heed FTC's warning in its Consumer Alert, "The Bottom Line About Multilevel Marketing Plans": "You are responsible for claims you make about a distributor's earnings potential. Be sure to represent opportunity honestly and avoid making unrealistic promises. If those promises fall through, remember that you could be held liable."
Finally, here's FTC's tips for evaluating a multilevel marketing opportunity:
"1. Avoid any plan that includes commissions for recruiting additional distributors. It may be an illegal pyramid. [And, by way, calling it "benefactoring" won't help. Just a handy hint ...]
"2. Beware of plans that ask new distributors to purchase expensive products and marketing materials. These plans may be pyramids in disguise.
"3. Be cautious of plans that claim you will make money through continued growth of your downline, that is, number of distributors you recruit. [Don't take this tip out of context - by definition, more people you have in your downline, more you'll legitimately make in MLM. What FTC is saying here is to watch out if plan rewards you for recruiting per se, rather than paying you a commission on sales of product to general public generated by your downline.]
"4. Beware of plans that claim to sell miracle products or promise enormous earnings. Ask promoter to substantiate claims.
"5. Beware of shills - "decoy" references paid by a plan's promoter to lie about their earnings through plan.
"6. Don't pay or sign any contracts in an "opportunity meeting" or any other pressure-filled situation. Insist on taking your time to think over your decision. Talk it over with a family member, friend, accountant or lawyer.
"7. Do your homework! Check with your local Better Business Bureau and State Attorney General about any plan you're considering - especially when claims about product or your potential earnings seem too good to be true. [Don't rely too much on BBB though - companies pay to be listed with them so they're not as authoritative and independent as they seem. Asking whether they have complaints on file about your particular program is worthwhile, however.]
"8. Remember that no matter how good a product and how solid a multilevel marketing plan may be, you'll need to invest sweat equity as well as dollars for your investment to pay off."
By testing any opportunity against above tips, you'll go a long way to ensuring that what you're getting yourself into is a legitimate MLM program and not an illegal pyramid. Probably best gut check of them all though is good old "if it sounds too good to be true, it probably is".
Hmm ... $1.1m in 39 days for an investment of $60 ... somehow, I JUST don't think so ...
Elena Fawkner is editor of A Home-Based Business Online ... practical home business ideas for the work-from-home entrepreneur. http://www.ahbbo.com