Why the U.S. Government Prosecutes MLM “Scams”
I wrote the other day about Pyramid Schemes and Multi-level marketing. You may have been wondering what the difference is between them. Not much. But you should know that the U.S. government keeps an eye on these companies and they don’t mind prosecuting them.
The U.S. Postal Inspection Service says that MLM’s work like “pyramid schemes,” in which one person makes money based on signing up other people below him or her, and they in turn make money on people below them. In most cases there is a product or products to sell. Of course, the top guys make money on all the people “down line” from them. The Post Office says the elements of a scam are present if the emphasis is more on recruiting others than in selling products.
Fradulent pyramids violate lottery statutes in three ways:
1. There is a “prize” - expectation of gain based on the sales of others
2. There is an element of chance, because you can’t predict what kind of return you will get, since you don’t know what others will do.
3. And there is consideration (the fee you pay to become a distributor).
Here is the key to whether this is a Pyramid/MLM: Is the “opportunity” is based more on chance or on sales of a product or products?
If someone presents an “opportunity” to you, consider carefully and read as much as you can about the company and the way the marketing process works before you sign up. Also note that in most of these cases, you should be allowed to reconsider within 3 days.
Tags: Home Business Opportunities, multi-level marketing, pyramid schemesShare This
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POSTED IN: Consumer Alerts, Laws & Regulations, Laws & Regulations, Marketing
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