Let's say I want to start a new pyramid scheme. I
decide that I want my pyramid scheme participants to pay $100 each as their entry fee and
that I'll pay back $35 on each membership in a complex compensation scheme to the various
upline for each new participant. The remaining $65 I'll keep as profit. I can't just ask
for cash payments, however, because that would be too obvious and I would be shut down
right away.
What I do instead is find a product - a "widget," let's say- that I can get from
the supplier for $1 and that has or would have an ordinary retail market price of $1.50. I
charge each new participant in my scheme $100 to buy a widget and join the scheme with the
right to recruit more widget buyers. The new participant and his upline share in the $35
pyramid kickback - which I'll now refer to as a rebate - or even more deceptively - a
"discount." I make $64 profit and anyone who can recruit enough people buying
widgets underneath them can eventually make a profit off their small share of the $35
kickback on each sale.
What practical difference is there between this example and simply taking an up-front cash
payment from each participant with no product at all?
If an MLM's product is primarily sold to actual customers who buy the product at the MLM's
price and who don't participate in the "business opportunity", it practically
guarantees that the "product" is not a cover for a pyramid scheme.
Understand that the "product" can be a shill for an illegal
scheme in two ways:
(1) it might not be a real product at all - e.g. those one page
"reports" that are "sold" in chain letter schemes; or,
(2) it may be a real product but sold at an unreal "pyramid
premium" price (as in my widget example).
If it is the latter, there will not be a significant market for the
product. If there is little or no reasonable retail market (i.e., the products aren't
price competitive) the only people likely to buy them are the participants in the scheme.
The only way for participants to make money is to recruit more participants to make the
purchases and we are back to square one, with the vast majority of participants losing
money so that a small number can profit.
As a result, the Federal Trade Commission, the Federal agency charged with regulating the
Multilevel Marketing industry and chain-marketing schemes uses the following definition
for pyramid schemes:
'Prohibited marketing scheme' means a pyramid sales scheme, Ponzi
scheme, chain marketing scheme, or other marketing plan or program in which a person
participates under a condition that he or she make a payment, directly or indirectly, to
receive the right, license or opportunity to derive income as a participant primarily
from:
(1) the recruitment of additional recruits by the participant, program promoter or others;
or
(2) non-retail sales made to or by such recruits.
'Retail Sales' means sales of products, services, or Business Ventures by Defendants,
their successors, assigns, agents, servants, employees, and those persons in active
concert or participation with them to third-party end users. Retail Sales do not include
sales made by participants in a prohibited marketing scheme or multi-level marketing
program to other participants or recruits in that scheme or program or to such a
participants' own accounts.
Notice that last part. "retail sales" does not include sales for your own
consumption or sales to your downline for their own consumption.
For more information on pyramid schemes and product pyramids see www.mlm-thetruth.com |
