PYRAMIDS SCHEME SCAMS

MLM is good – These aren’t !

By Rod Cook Bs., M.A., M.B.A.

MLM is good. The tragedy is we lose lots of people are pulled into Pyramid Schemes because they don’t know the meaning, definitions, and look of a Pyramid Scheme. In the 20 years or so I have fought Pyramid Schemes. I have a hard time convincing people that they were in a Pyramid Scheme that is guaranteed to collapse! I mulled over the explanation problem for years and developed this primer through actively chasing down and exposing these Pyramid Scheme Scams that hurt the MLM industry so badly. With the Internet Pyramid Scheme “diseases” spread quickly.

Worst of all, some people that start Pyramid Schemes are innocent. I have fought with ministers, schoolteachers and even policemen that started or were involved in Pyramid Schemes. They were honest folks but could not grasp the fact that if you don’t have a product or service that is of value and are just signing up people that this is “Head Hunting.” Head hunting Pyramid Schemes can be disguised any number of ways. I am constantly amazed at the new ways that people come up with faulty logic to create Pyramid Schemes. A pyramid scheme is doomed because it needs more and more people to invest to keep it alive. As you’ll see there aren’t enough people on earth to sustain Pyramid Scheme scams

Here are some basic guidelines to refer to as you go through this section. Remember these are “general indicators” since outside of court precedents there are no specific laws “picturing” these Pyramid Scheme Scams. The word regulator is used as a general term for consumer protection regulators such as : District Attorneys, State Attorney Generals and Federal Agencies such as the Federal Trade Commission (FTC), Securities and Exchange Commission (SEC) and the Federal Drug Administration (FDA).

1. To start out lets consider the three parts to look for a Pyramid Scheme scam
   　

   Substance: would you buy this product or service (if there is one) if there were no    income opportunity attached? No means it is probably a pyramid scheme scam. Form and Structure: It there a certain number of people that you have to bring in to get a set amount of money? Yes means it is probably a pyramid scheme scam. Does it pass a legal test: Are 30%-50% of the people that buy the “main sales item(s) customers that do not belong to the income opportunity? No means it is probably a pyramid scheme scam!

2. Commissions should not be paid on just signing up distributors. When you see a “number” involved to collect commissions that is pure pyramid. The examples you see in the following pages show 6, 10, 32, 60 and some other amounts of people. The “Head Count” to collect money is a dead giveaway! See the “Matrix” pyramids.
   　　　
3. There are no sales of the product or services to people outside the pyramid. Meaning no retail sales to non participants (customers) in the pyramid. Retail does not mean there has be a retail price for a service or product. The item being sold has to have enough value so someone not interested in the income opportunity would buy it. The amount of customers needed to legitimize a program is open to debate with different states and the federal government. Current percentages estimated run 30-50% of monthly buyers must be customers only, some regulators want it higher.
   　

   To be safe are ? or 50% of the people that buy into the opportunity RETAIL CUSTOMERS that do not belong to the pay plan! That means that they buy the product or service and do not plan to try to make money. That proves the value of the package to regulators including the Federal Trade Commission and many State Attorney Generals! North Carolina generally goes one further (based on recent legal activity against MLMs) and says that 70% of sales must be to Retail Customers that don’t belong to the pay plan. Other states may use this unfair number quoted from the “Omnitrition” case ruled on by the 9th Federal Court of Appeals. Fair percentages are 30%-50% Customers who don’t belong to the pay plan.

4. Is there a real product or service? Is there value in the product or service? See the “VOUCHER” expose (following) where worthless paper (a voucher) is traded to a “sucker” for his money and then that worthless paper is traded for a worthless lithograph. This is the height of “worthless.”
   　
5. One of the hallmarks of a good MLM product is that after distributors drop out of the pay plan, they still buy the product/sevice. So the best question to ask yourself is, “would I keep buying the product or service if I quit being a distributor?” This goes back to the issue in paragraph 3 that says are at least 50% customers? This creates a problem when your company just signs up everybody and does not distinguish and separate customers from moneymakers.
   　
6. Is the price of the product or service competitive. An example: common ploy in pyramid schemes is to set the price for a 1000 junk names (sold to everyone) at $100 to $250. They are worthless. One company did a camera and umbrella for $100. Websites and Internet offerings are suspect in today’s market as to pricing. Training is always suspect (with many historical court cases) because unless the training is sold without commissions and there is established market value, it is considered a “sham product” by regulators.
   　
7. To join a company there shouldn’t be any charge except for a basic sales information and training kit that provides value for the money. Prices should run around $19 to $50 with no commissions paid to uplines on the sales. Some states even have frowned on the company making money on a sales kit and indicated they should be sold at cost only. The company should offer return of some money on the kit if a distributor quits.
   　
8. A sure way of attracting legal attention is to require distributors to stock large amounts of inventory. A sure clincher to this is for the company not to have a buy back policy for distributors that quit. If the inventory requirements are high enough that the items collect dust in a garage expect trouble. Many pyramids may say they have such a policy but don’t honor it or make it a horror to return products. One recent one sold Autoresponders (7 to an entry) with people encouraged to buy 10 to “really make money!” Seventy (70) autoresponders? Suckers!
   　
9. A sure mark of a scam is high earnings claims with little or no value to the product or customers. Companies are too frequently nailed to the wall for having distributors making claims that are not supported by actual statistics, but the hallmark of a scamster is “I made $30,000 my first month!
   　
10. Earnings claims especially when combined with “Get Rich Quick (GRQ)” phrases are big red flags to regulators. Some regulatory activity requires that “builders” perform and ongoing training and supervision role to collect commissions in depth. This is work! If you notice, a trait of pure pyramid schemes is for the person to collect money (“cash out) and leave. Fast money and Gone!