Legitimate multi-level marketing companies, on the other hand, can be around for a long time. The only people who make money are those few who are on the top of the pyramid. Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. Pyramid schemes are doomed to fail because their success depends on the ability to recruit more and more investors. Why Do Pyramid Schemes Always Fail? And Why Do Legitimate Multi-Level Companies Sometimes Survive? Recruitment of new investors is secondary. Success in multi-level marketing is based on two factors: product and service quality, and the hard work involved in being able to sell the products or services. On the other hand, legitimate multi-level marketing companies will buy back unsold merchandise, although often at a discount from the original price. Very often the products or services the victim must buy are unsalable, and the pyramid's promoters refuse to repurchase them. In a typical pyramid scheme, new investors must pay a fee for the right to sell the products or services as well as for the right to recruit others into the pyramid for rewards unrelated to product sales or services. A pyramid scheme uses products or services to disguise its quest for collecting money from the investors on the bottom levels to pay other investors further up the pyramid. What Are The Differences Between A Legitimate Multi-Level Marketing Company And A Pyramid Scheme?Ī legitimate multi-level marketing company emphasizes reliable products or services. Because of their pyramidal structure, multi-level marketing companies can sometimes be pyramid schemes. Products are sold through a network of distributors or salespersons set up to resemble a pyramid: each distributor recruits and trains additional distributors and will earn commissions on their sales, as well as on the sales he or she makes. Multi-level marketing is a method of selling products directly to consumers without intermediary retail stores. The bottom line, however, is that in all pyramid schemes, the selling of a product itself is much less important than the recruiting of new investors. This is done solely to sidestep the regulatory agencies, as most state laws prohibit marketing practices where the potential for profit stems primarily from recruiting other investors and not from the sale of products. The trend is to involve sales of products or distributorships in an attempt to show legitimacy. Pyramid schemes may or may not involve the sale of products or distributorships. Article 23A of the General Business Law of the State of New York §359-fff sets forth the criminality of initiating and participating in pyramid schemes (also known as chain distributor schemes). Pyramid schemes are illegal in New York State, as well as in many other states. The small group of initial promotors at the top require a large base of later investors to support the scheme by providing profits to the earlier investors. The scheme is called a 'pyramid' because at each level, the number of investors increases. Initially, it should be noted that pyramid schemes always fail, while multi-level marketing companies sometimes survive.Ī pyramid scheme is a fraudulent system of making money based on recruiting an ever-increasing number of 'investors.' The initial promoters recruit investors, who in turn recruit more investors, and so on. It is important, therefore, to address the differences between a pyramid scheme and a legitimate multi-level marketing company. In recent years many companies have successfully utilized so-called 'multi-level marketing' practices.

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