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The telltale signs of a pyramid scheme

June 17, 2014

Consumer Education Specialist, FTC

What’s the difference between a multilevel marketing program and a pyramid scheme? Pyramid schemes are illegal.

If 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 lots 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.

Today, the FTC announced a settlement with Fortune Hi-Tech Marketing (FHTM), a company that operated an illegal pyramid scheme disguised as a multilevel marketing program. Over 350,000 people were scammed out of a total of at least $169 million. The settlement bans FHTM from the multilevel marketing business and from deceiving consumers. FHTM will fork over at least $7.7 million, which will be returned to consumers.

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.

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.

If you’re in the market for a job, investment, or work-at-home business, check out our tips to avoid other business opportunities scams.

Article from: http://www.consumer.ftc.gov/blog/telltale-signs-pyramid-scheme#.U593btAJU8o.email

Re-posted with permission.

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