Stay Calm.
Move Forward.
Grand Rapids Michigan Skyline Over Grand River
  1. Home
  2.  » 
  3. White-collar Crime
  4.  » Multi-level marketing or pyramid scheme: How can you tell?

Multi-level marketing or pyramid scheme: How can you tell?

On Behalf of | Sep 14, 2021 | White-collar Crime

People get talked into all sorts of dubious “business ventures” and “investments” all the time, particularly in the form of multi-level marketing (MLM) companies. MLMs promise untold riches — with your potential wealth limited only by your drive, effort and imagination.

In general, MLMs aren’t usually as profitable for the average entrepreneur as they claim. You’ll most likely end up losing your investment with little to show for your efforts. Worse still, you could find yourself involved in a pyramid scheme.

What’s the difference between a pyramid scheme and an MLM?

Mostly, it comes down to this: MLMs are legal and pyramid schemes are not. MLMs generally have an actual product or service that they sell — although their business model relies on their salespeople recruiting others to sell under them in some kind of profit-sharing agreement.

If you’ve ever been to a PartyLite or Pampered Chef party hosted by a friend or relative, you’ve no doubt encountered a salesperson who was eager to recruit you to “join the team.”

By comparison, pyramid schemes offer nothing of value for investors to market. Investors are asked for the money with vague (but grand) promises of a big return, and then told they must find other investors to turn a profit.

Money from new investors is funneled toward the top, which creates an illusion of a profitable investment — and that keeps roping people in. Eventually, pyramid schemes collapse because there’s nobody with money left to recruit — and those on the lowest levels of the pyramid lose their “investments.”

Can you be charged with a crime for being involved in a pyramid scheme?

Absolutely. Even if you lost money, the fact that you participated in the fraud and (likely) enticed others to participate in the same fraud is enough for the government to bring charges against you.

Michigan has numerous laws against pyramid schemes, including the Pyramid Promotion Act and the Consumer Protection Act — and penalties are stiff. If you fell for someone’s hook and got involved in a pyramid scheme, you need to get out — and you may need to consider all your legal defense options