Smoke out that pyramid scheme

June 11, 2014

Most in Acadiana work hard for their money and want to spend it wisely. Better Business Bureau of Acadiana has heard of a few business opportunities that make claims of high profits with little investment fees.

Before you sign on the dotted line or send money to buy or invest in a business opportunity, BBB suggests you find out about the Business Opportunity Rule enforced by the Federal Trade Commission. The rule puts safeguards in place to make sure you have the information you need to evaluate whether a business opportunity is risky and gives you valuable information to protect yourself from schemers and scammers.

How does the rule protect people thinking about buying a business opportunity? First, it requires sellers covered by the rule to give you a one-page disclosure document outlining important facts about the opportunity. Second, if sellers make any claims about how much money you might make, they have to give you information with more specifics. Third, the rule makes clear that certain practices are against the law.

BBB has received many calls from consumers through the years asking the difference between a multilevel marketing program and a pyramid scheme. The most obvious is pyramid schemes are illegal.

If a presentation is made to you claiming the money you earn is based on your sales to the public, the company may be a legitimate multilevel marketing plan.

Here are some signs that the company is operating a pyramid scheme:

• Your income is based mainly on the number of people you recruit, and the money those new recruits pay to join the company — not on the sales of products to consumers

• You’re required to buy a lot of inventory.

• You’re forced to buy other things you don’t want or need just to stay in good standing with the company

One other key difference: You’re likely to lose money if you sign up for a pyramid scheme.

If you’re planning to buy into a multilevel marketing plan, get the details. Ask these questions to learn if it’s a pyramid scheme. Make sure your income is based on sales to the public, not on what you have to buy yourself or the number of people you recruit; often including family members:

• How much product did you sell to distributors?

• What are your annual sales of the product?

• What percentage of your sales were made to distributors?

• What were your expenses last year, including money you spent on training and buying products?

• How much money did you make last year — that is, your income and bonuses, less your expenses?

• How much time did you spend last year on the business?

• How long have you been in the business?

• How many people have you recruited?

Be skeptical of rags-to-riches stories or portrayals of lavish lifestyles made possible by participating in the program. These stories may not represent the experiences of most members.

Exercise doubt. Even if a company sells products or services you’re familiar with — or boasts celebrity members — it may not be legitimate. BBB advises you to be smart, use common sense and remember “if it sounds too good to be true, it probably is.”

Start with Trust®. Check with the BBB before doing business.

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. Landry, St. Martin and Vermilion.