The difference between an illegal pyramid scheme and a legitimate multi-level marketing plan
June 27, 2018 – OTTAWA, ON – Competition Bureau
Do you dream of being your own boss and setting your own hours? Are you trying to find the perfect side-gig that will increase your bank balance? A multi-level marketing plan is one option that you may come across. Contrary to popular belief, they are not the same as pyramid schemes. While the first is completely legal, the second is not.
If you join a multi-level marketing plan, you essentially become a salesperson of goods such as jewellery, health supplements or beauty products. At the same time, you can recruit others to expand the network. As your business grows, you get opportunities to earn more and more money. All along, the focus is on earning money by selling your products.
Pyramid schemes look a lot like their legal cousin but traditionally focus on generating profits by recruiting others. Often, you are encouraged to pay large membership fees upfront to join. The only way for you to make any money is to convince more people to join the scam and give up their hard-earned money. People are often persuaded to join by family members or friends.
Before signing up:
- Research the business: check different websites, consult many reviews. If something seems fishy, walk away.
- Beware of multi-level marketing plans that promote huge profits using only their highest earners as examples.
- Know that they must disclose the compensation actually received or likely to be received by a typical participant.
- Watch out for plans that:
- have compensation plans focused on recruiting new members.
- don't include a reasonable buy-back guarantee or refund policy, allowing you to send back your extra products at the end of your career. If they don’t provide it proactively, ask to see it. Plan operators have to tell you about it.
- force you into buying excessive quantities of products.
- Don’t be fooled by “get rich quick” promises. These plans often end-up requiring just as much work as any other job.
Promises of financial freedom with minimal effort are always enticing. But success stems from hard work, determination and doing your research. Before you sign up, be sure the opportunity is right for you. Avoid plans that don't provide all the details or could be pyramid schemes.
If you have information about an illegal pyramid scheme or any other type of fraud, report it to the Competition Bureau.
Associated links
Multi-level Marketing Plans and Schemes of Pyramid Selling
Pyramid schemes
Help Stop the ‘Gifting’ Pyramid Scheme (by the RCMP)
Reminder: A gift is only a gift when there is no expectation of any return (by the RCMP)
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