What should I do if I've found a Pyramid Scheme?

This is a bit of a doozy so bear with me. A fellow worker of my boyfriend came to him and has tried recruiting him for a second but "easy" job. Basically he'd be selling products that the company gives him and what not. This would triple his paycheck and because he's still paying student loans, it sounds like a godsend. He went to a few meetings, and came back with information for me. Here - they meet the boss in a house, not his house, just a house of an employee. The boss wanted my boyfriend to go down to CT (We're in MA) to meet him. If you go to the website, it has a video under "business options" and you'd think they'd have like a list of things to do or a list of jobs like "cashier" or "Sales representitive" but no, just a long video stating economic facts like "the sales of computers in blah was blah and now it's blah." THE WHOLE VIDEO.

The guy who recruited my boyfriend, after talking with him a bit, described it basically as a Multi-Level Marketing Company.... To me, this just SCREAMS Pyramid scheme.

I know Pyramid Schemes are illegal... but who do I contact or what do I do?

Oh, and don't worry about my boyfriend. He's on the same page I am and is being extremely careful. All I want to know from your answers is what do I do?

Update:

I was afraid of putting the name up here, but... I guess I can take it down if I have to? Here's the site - http://www.pakielaendorsements.biz/

3 Answers

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  • 9 years ago
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    To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261.

    The Federal Trade Commission site is a good place to get education on the difference between a multilevel marketing company and a pyramid scheme. The Federal Trade Commission (FTC) is an independent agency of the United States government. One of the FTC's jurisdictions is suing pyramid schemes that attempt to make themselves appear to be legitimate multi-level marketing companies.

    The link you displayed is a link to an Amway distributors website. In a 1979 landmark case the courts ruled that Amway is not a pyramid scheme. You can read about the case in my source below.

    Since you can have a product and still be a pyramid scheme. The obvious question is how can you tell the difference? I am providing a link so you can read the FTC's response to this question. Here are a few excerpts from their reply:

    ---"The amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.

    A multi-level compensation system funded primarily by payments made for the right to participate in the venture is an illegal pyramid scheme.

    Modern pyramid schemes generally do not blatantly base commissions on the outright payment of fees, but instead try to disguise these payments to appear as if they are based on the sale of goods or services."---

    In plain english this means that the FTC is concerned with the motivation for purchasing such products. If people are buying products simply to participate in the business then it may be a pyramid scheme. The value of the products is key. A simple question to ask when reviewing an MLM company is this - Can the last person in make money? In a legitimate network marketing company the last person in can make money by selling the product or service directly to consumers. This can't be hypothetical. When the ftc investigates a company they want to see these sales actually happening. Its not good enough to buy thousand dollar pencils and "say" that you "could" mark it up and sell it for two thousand dollars each. After all who in their right mind would buy a two thousand dollar pencil? The company is legitimate when these sales are actually happening.

    So how can you know that these sales are actually happening? You don't. No company is going to open up their books and allow you to examine their customer to distributor ratio or interview their customers so you can evaluate their motivations. You'll know its happening in YOUR business only. The way you protect yourself is by finding a product that you love and would buy even if there was no compensation plan attached to it. If you can create a business selling the products then you have validated the legitimacy of the business.

    Source(s): The FTCs explanation of the difference btwn a legitimate MLM company and a pyramid scheme: http://www.marketwaveinc.com/FTC_Letter.pdf 1979 Landmark case that ruled Amway is not an illegal pyramid scheme: http://en.wikipedia.org/wiki/In_re_Amway_Corp. The FTC's advice on how to review an MLM plan: http://business.ftc.gov/documents/inv08-bottom-lin...
  • 9 years ago

    Since you don't mention the name of the company, we can't really provide any info.

    Awhile ago I read a long article in the Wall Street Journal on what's the difference between a pyramid scheme and a multi-tier marketing system = really, it boils down to how they sale. A "legitimate" company sales more to outsiders than to members (amway, avon, marykay, pre-paid legal services, etc). But I'm on the same track as you, none of it is "legitimate".

    With the down economy there has been a bigger inflex of mutli-tier companies and state Attorney General's are working against the "pyramid schemes". You can google the one that you were approached by to see how legitimate it is. Most likely if it's not on the up and up, teh state's already know about it.

    FYI - if you google him, it appears that he is just an independent Amway dealer. Look at this products and that is what he is selling. And if you google him, it says he is an independent amway dealer. He does have a good "scam" going on. Made you think it/he is something that he is not.

  • 9 years ago

    I was approached by someone on my birthday a few years ago. I told them I really wanted to get to my party and I wasn't into selling things and they just insisted I come. So they explained and why it wasn't a pyramid scheme. . .it was just thinly veiled. So I stood up in the middle of all the gafawing from the greedy people who would be delighted to rip off their neighbors, friends and relatives and said I would work at the bottom of the scheme selling the stuff and everyone laughed. I pulled my neighbor aside and thanked her for wasting my time and making me late for my party. I heard her husband say as I stomped out the door. . .I told you she was too smart to go for it. . .I called the police as I got into my car and asked for the bunco squad. . .an old term for those police that dealt with fraud and they also laughed at me and said why don't I not buy anything. They also didn't know what the bunco squad was and then I heard one cop ask another if pyramid schemes were illegal. Perhaps you live in a part of the country that hasn't turned into a third world country and the police would assist you. Always remember. . .if it seems too good to be true, be very very careful.

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