Fortune Hi-Tech was not a member of the association, Mariano said.
MILLION DOLLAR PYRAMID PARTY CODE
Key to the association's code of ethics, which members are expected to abide by, is a prohibition on deceptive sales practices, including promises of outsize earnings. "Their mere existence confuses the marketplace and makes it more difficult for legitimate direct-selling companies to do business and to be understood." Companies use money they would otherwise spend on ads or shelf space to instead pay distributors. Joe Mariano, president of the Direct Selling Association, said MLM companies typically use multilevel compensation as an alternative to traditional advertising. But it was a rigged game, and the vast majority of people lost money." Steven Baker, director of the FTC's Midwest region, said, "These defendants were promising people that if they worked hard they could make lots of money. In the Fortune Hi-Tech Marketing case filed last month, C. While prosecuting an MLM can seem somewhat of a judgment call, cases have a common factor: deceptive promises about how much money distributors will earn, Vaca said. "It gets cloudy when you have a situation where you have fees being paid for both," said Monica Vaca, assistant director of the FTC's division of marketing practices. It eventually collapses when the scheme can't recruit more people.īut identifying a pyramid scheme can be difficult because MLMs typically have product sales, along with recruitment fees and recruitment incentives. If the company and its distributors make money primarily from the sale of products to end-users (and not boxes of product accumulating in a distributor's garage), it's OK.īy contrast, a pyramid scheme compensates those at the top of the pyramid with participation fees paid by those recruited at the bottom.
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The difference between a legitimate business and pyramid scheme comes down to products. The Federal Trade Commission agrees there are legitimate MLMs. The Direct Selling Association says MLMs are legitimate businesses, and that the group has about 200 members carefully screened by the organization to ensure they are not pyramid schemes and don't use deceptive practices.