BBB alerts Acadiana to Pyramid Schemes

Better Business Bureau of Acadiana often gets calls about multi-level marketing (MLM) opportunities. Are they scams? The short answer is no. MLM is a legitimate business model. However, MLM is not easy and Pyramid schemes are considered scams.
May 19, 2014

Multilevel or "network" marketing plans are a way of selling goods or services through distributors. These plans typically promise that if someone signs up as a distributor, they will receive commissions for their sales and those of the people you recruit to become distributors.

These distributers are sometimes are referred to as a "downline."

Some multilevel marketing plans are legitimate. However, others are illegal pyramid schemes.

In pyramids, commissions are based on the number of distributors recruited. Most of the product sales are made to these distributors - not to consumers in general.

Joining a pyramid is very risky because the vast majority of participants lose money to pay for the rewards of a lucky few. Most people end up with nothing to show for their money except the expensive products or marketing materials they're pressured to buy.

Here are some tips on how to research a MLM company and make sure it’s right for you. Think about:

  • How transparent is the company? Are you getting real answers to your questions, and not just the run-around or a company line?
  • What is the initial investment?
  • Who will support you? Does your sponsor seem like they will actively coach you and have time for you?
  • Are refunds available to you and to your customers?
  • How do they deal with complaints?
  • Are they aware of or do they subscribe to the Direct Selling Association Code of Ethics?

Remember that pyramid schemes, which can look like MLM to begin with, are not legitimate. A genuine MLM opportunity involves product and is not simply mailing cash back and forth.

Be skeptical if a distributor tells you that for the price of a "start-up kit" of inventory and sales literature - and sometimes a commitment to sell a specific amount of the product or service each month - you'll be on the road to riches.

Often consumers spend a lot of money to "build their business" by participating in training programs, buying sales leads or purchasing the products themselves. Too often, these purchases are all they ever see for their investments.

BBB offers the following tips to avoid being drawn into a pyramid scheme:

  • Start with Trust®. Check with the BBB before doing business.
  • Avoid any plan that includes commissions for recruiting additional distributors. It may be an illegal pyramid. Beware of plans that ask new distributors to purchase expensive products and marketing materials. These plans may be pyramids in disguise.
  • Beware of plans that claim to sell miracle products or promise enormous earnings. Ask the promoter to substantiate claims.
  • Don't pay or sign any contracts in an "opportunity meeting" or any other pressure-filled situation.
  • Remember that no matter how good a product and marketing plan may be, work and money have to be invested.

BBB works for a trustworthy marketplace by maintaining standards for truthful advertising, investigating and exposing fraud against consumers and businesses.

BBB of Acadiana services the parishes of Acadia, Evangeline, Iberia, Lafayette, St. Martin, St. Landry and Vermilion.