Many pyramid schemes attempt to present themselves as legitimate MLM businesses.
Some sources say that all MLMs are essentially pyramid schemes, even if they are legal.
Federal Trade Commission (FTC) states: “Steer clear of multilevel marketing plans that pay commissions for recruiting new distributors.
Are MLM and pyramid schemes the same?
Pyramid Schemes are, however, fraudulent schemes, disguised as an MLM strategy. The difference between a pyramid scheme and a lawful MLM program is that there is no real product that is sold in a pyramid scheme. Participants attempt to make money solely by recruiting new participants into the program.
How are MLMs not pyramid schemes?
Commissions are paid on sale of products and not on enrolments; MLM has a hierarchical commission set up on the sales of products, whereas pyramid schemes are based solely on new enrolments. Company buys back inventory from participants at the time of termination, pyramid schemes do not have any inventory.
Are pyramid schemes illegal?
As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal. Pyramid schemes have existed for at least a century in different guises. Some multi-level marketing plans have been classified as pyramid schemes.