1. Hi Kyle,

    The first time I got involved into a Pyramid Scheme was in the early 90’s when phone cards were all the rage. It was a binary plan where you had to pay hundreds of dollars to become a member. The cost of the actual phone cards could not by themselves create a decent in come for anyone. They got closed by the FTC. Fortunately I was not able to recruit anyone.

    There were two other MLM related companies I got involved in that used R&D and manufactured their own health related products. I benefited from the products and remained as a customer. Jay Neil in fact uses their products. The company is called USANA Health Sciences.

    My final MLM company has saved me thousands of dollars in legal fees, scams and unscrupulous contractors. They are called LegalShield and are very successful.

    The bottom line is as you stated, if a company has a legitimate product that is fairly priced, encourages its associates to market the product just as much as the business, and has reasonable fees to become an associate, then it is legal.

    But these are few and far between. However, since the business model of ALL MLM companies depends on a network of associates to sell the product, there is going to be focus on a combination of finding customers as well as business associates. It is up to those who get involved to decide what works best for them.

    In fact, it is possible to use the affiliate marketing model to earn good money in these companies without having to recruit any business associates because the product themselves have great value.

    Thanks for illustrating the pitfalls of pyramid schemes Kyle. Red flags are overpriced products and excessive fees to join, and a total focus on recruiting new people which are necessary to feed into illegal compensation plans.

    Affiliate marketing is the way to go to create a stress free online business.



  2. Wilson

    Today is definitely MLM day for me because this is the fourth MLM related article I’ve read lol.

    This is a very comprehensive breakdown of what MLM is though. A pyramid scheme with a product involved as an excuse to move money through the ranks.

    You mentioned that they are all doomed to collapse eventually, although I do see that some big ones (Amyway, Herbal life, Mary Kay etc.) have been around for a long time and seem to pop up every once in a while. What do you think the explanation is for that?

    • Kyle

      These programs tend to exist when they have a tangible product (not digital) and their scheme is focused moreso than others when it comes to actually selling the product.  

      There is a lot of reading material out there if you want to read about the idea that Mary Kay or Amway, or Herbalife are pyramid schemes, some very authoritative figures have indicated they are and the FTC just recently required Herbalife to make some major changes to their business model (which I think was good for the industry as a hole). 

      There are many that get taken down though, large companies and even ones generating 100’s of millions or even billions of dollars.  I think with the ubiquity of programs running digital products as their “product” these days, they very little tangible distribution costs and they are also becoming very expensive within many schemes.  I think there is going to be focus more on these, versus the tangible products in 2018.  

      We will see though.  One thing that you can be sure of is that there are many programs that are illegal schemes out there that are simply surviving right now because the FTC and other regularity entities haven’t quite got to them yet. 

        • Kyle

          I am not familiar with either, but I can tell you that if a product price is inflated for the mere purpose of compensating participants within an MLM, and supporting a upline/downline structure, I would be skeptical of this. You see this a lot within the health world, but not limited to that.

          If your senses are telling you that it is a scam and there are red flags going off, then it more than likely is.

  3. Lorna

    I’ve always heard about pyramid schemes and had a basic understanding of them but your article really explains things in depth and I understand them a lot more now.

    I didn’t realise that anyone who’s involved in these schemes at all can face such serious consequences, I just thought the people at the top who start one of these were the ones liable and in trouble if found out. It’s sad really that a lot of the people at the bottom can get into such trouble too when they’re probably unaware they’re doing something illegal and don’t realise it’s a pyramid scheme when I’ll bet the ones at the top know full well what they’re doing is wrong.

    • Kyle

      Most people don’t realize that when they are involved in something illegal, they can carry the exact same responsibility.  Like being an accomplice to someone robbing the bank, although you were waiting out in the  car for the actual person taking the money, you are still very much involved and can be charged. 

      The same goes for the multi-level marketing space, if you are promoting something that ends up being illegal (and it was the entire time), then you can carry the same responsibility.  

      I know that here in Canada there have been many people charged that were “participants” in pyramid schemes or ponzi’s and actually were not the owners.  If you are doing something unethical and something that is fraudulent, in my mind and in the regulatory entities it doesn’t matter if you are owner of a particular scheme or involved in it. 

      That is why anyone should really do their due diligence before joining an MLM, there is a very good chances these days you are at the very least getting involved in something that is unethical. 

  4. Marques Pizarro

    I am in a marketing class in high school, and when we learned about pyramid schemes, I never fully got the concept, but now I do. I am glad I read your article at a young age because, over time, there is going to be a lot of programs that are scams.

    What are some ways to make sure our businesses are ethical and not schemes? I read some previous comments on this article and it seems like the consequences are serious. hope to read your response, thank you for sharing this.

    • Kyle

      Wow, that is great that they are teaching this sort of thing in high school (pyramid scheme avoidance).  Fortunately your generation will be more equipped and savvy when they see something of this nature within the online world, they will hopefully know what to look for what to avoid. 

      I have mentioned some of the main things to look for above, but one of the most common signs is being sold on something without knowing exactly what it is you will be doing to earn money. 

      All too often you will be pushed the idea of a brilliant lifestyle, usually some guy pitching you on a beach or while on vacation…or within a fancy car, and they you have to sign-up to an email list in order to get more information.  That is almost CERTAINLY going to be a scam, maybe not a full blown pyramid scheme, but a scam.  That is the tactic most of the scuzziest marketers are using these days and you want to avoid anything that smells of that.

      If they can’t explain their product, their business, how it works, before you give them any of your personal details, walk away.  Actually run away.  They are likely going to be trying to take advantage of you and use you as a financial tool for their own personal gains. 

  5. justin

    I don’t know how many times I see pyramid schemes and I wonder why are people promoting them when there is no future career in doing that. I try to tell people all the time because I  even tried one a long time ago and it will suck your bank account dry and you probably wont make anything.

    • Kyle

      The problem is that people are making money promoting them.   Very few people, the average MLM or pyramid scheme has a ratio of around 97% of people LOSING money, and around 3% of all the participants making money. 

      The people that are making the money tend to shout the loudest and brag about their success (they do this in order to create hope for those they are trying to suck into their scam), and those that lose money typically don’t have a means to communicate or are tied up with “non disclosures” they sign before getting into these programs which curb their voice and protect others.

      If more people only understood the 4 things to look for to avoid pyramid schemes, then there would be a lot less people getting ripped off. 

  6. Cameron

    You hit the nail on the head, Kyle. I’ve come across a few MLM companies that end up being legitimate, but if you look at their history, they often have a track record of lawsuits when they first started up.

    While not all MLM companies are pyramid schemes, if they fit those 4 criteria Its safe to say they are a pyramid scheme.

    When looking at different MLM companies, the good ones will be up front and honest from the get go about anything involved, and not hide any costs like a pyramid scheme would.

    Thanks for laying things out so clearly!

    • Kyle

      What happens is that many of these companies will start off as a completely obvious pyramid scheme, and then over time they realize this and they try to become legitimate.

      The problem is by that time, they already have left far too many traces of what they have done in the past and their new layers of legitimate “facade” tend to get drilled through very easily by the FTC (whom has access to all records and states of a company as they start to probe).

      There are lots of legitimate MLM’s out there, but it is when they are reliant on recruiting to drive their business or they are forcing people to spend large sums of money for the benefit of promoting that same “large ticket” level/category to someone else.  These immediately should draw red flags for any opportunity seekers. 

  7. jessie palaypay

    What advice would you have for someone who realizes the error of their ways and has recruited too many people into the scheme?

    I’d find it hard to go all of them and fess up my wrongdoings to them in fear of permanently burning the bridge with them. Even if I know it is the right thing to do.

    Also within that same topic, if those people that were recruited loss a decent amount of money, how does that sponsor make that up to them?

    • Kyle

      I would recommend that first, you get out of the scheme if you are still within it. Then I would recommend that you contact the FTC or regulatory authorities letting them know what is going on, I would put too much onus on yourself unless you were knowingly promoting something that was a fraudulent or pyramid scheme.

      Rather if this is something that has been revealed through you having a better understanding, you are going to be fine, but I do recommend that you contact authorities and make them aware of the program to save others from losing a lot of money.

      As for making money up to people, if there is a class action against the company, they will likely be able to get a portion of their money back (although it can take a few years). This is currently happening with several companies right now, their assets are seized immediately and then the regulatory decides how to divide things up.

      I wouldn’t panic though Jessie, but I would recommend that you do the right thing instead of moving forward in complete silence.

  8. Jeff

    Thanks for the great advice on giving me the good oil about how to avoid Pyramid Schemes. It was really interesting to read that you can actually face fines or jail times if being caught as an associate.

    Is there any genuine ways to make money online that do not come with a Scam Attached?

    • Kyle

      Yes, there are lots of ways to make money online without being involved in a scam.  The problem is that there are so many and because many of these operations are faceless (or don’t have to deal with people in person), that the online world has become synonymous with anything related to an “opportunity” being a scam. 

      Like offline business, online business is a vast world of opportunity, legitimacy, and there are millions of business ethically thriving within the online world.  There are a lot of people like yourself and myself, operating as affiliate marketers, internet marketers, product creators, dropshippers, etc…and building significant businesses doing so.

      If anything, the online world has given all of us a cost efficient, low barrier entry into creating a business online, one that has never been seen online.  Unfortunately, where there is opportunity there is vultures and there is going to be illegal schemes and scams created (like pyramid schemes). 

  9. Ryan Bee

    I almost got caught up in a program that appeared just like what you have outlined here. I attended a seminar in New Jersey several weeks back and they were pitching the idea of really high ticket commissions.

    They had a fellow speak to us that was in the program at the most expensive level, and he told us how much money he was making. He almost seemed like an employee though because he wasn’t teaching us much, he was selling us on hope and the dreams of making money like them. I have no idea even if they made money or they were a paid speaker trying to push this crap to us.

    After the seminar, they tried to pitch us on a $500 product and also pitch us on the idea of investing into masterminds that were very expensive some more than 20k i believe.

    Anyways it felt like a total scam, and after reading this I think we could probably fall directly into a pyramid scheme category. Thanks for giving me a new sense of clarity on this topic.

    • Kyle

      That is a very common tactic used by these companies. Certainly not all seminars are a bad thing, there are some good ones, but these high pressure sales ones are typically the craft work of companies within the MLM space that are operating as a pyramid scheme.

      Another tell tell sign is if they are requiring your to upgrade the MLM at certain levels in order to make larger commissions within the company. When you mentioned that the speaker at this event was trying to sell you on the idea of their particular status, this is subtly what they are attempting to do. Get you warmed up to the idea of spending a lot more, just so you can have that status and earn the larger commissions.

  10. Dave

    I have been having a friend push a product on me and tried to emphasize how quick I had to join to the program because the program only had a few spots remaining.

    I didn’t join because I don’t like to pressurized into joining stuff.

    I decided to do some research about it instead, and have seen it has these crazy promises of buying a Rolls Royce in a month, and they don’t tell you what exactly you’ll be working on.

    The red flag went up for me immediately I saw this, luckily I didn’t join.

    • Kyle

      Well I am really glad you did your due diligence.  Pitches like this and saying there is “only a few spots left” is the exclusivity that these programs utilize to pressure you into joining fast. It is very easy to get cold feet when something doesn’t feel right and they certainly don’t want you going off and doing research (as that will almost certainly reveal their pyramid scheme).

      To me, a friend isn’t a friend that is trying to use YOU as a financial instrument in their business.   They are not better than the company that is a pyramid scheme itself if they are trying to get you involved in the same scheme.  And we need to remember,  the only way to earn money in these types of programs is getting “others” involved beneath them.

  11. Hung

    Scams like pyramid schemes are hard to avoid and almost everyone gets pulled into them.

    I was once almost pulled into a pyramid scheme, not an online one but still. They held seminars and everything and everyone had to bring “guests” so they can hook them in. They promised “You can make a million dollars in a month!” over and over haha.

    Long story short, I almost fell for it (my friend not so lucky). Thank you for the information, I think everyone needs to know to avoid it!

    • Kyle

      The problem with most programs like this is they play on your heart strings and hope.  They get you in a room, such as a seminar and then basically outline how much money you will make (without telling you what you are going to be doing),  get a few of their top sales reps in the room, and then invoke high pressure sales on you before you leave.

      It works.  That is the problem.  People continue to fall for this, even educated folks that should know better.  I  hope as time goes on people can educate themselves on what to look for in a pyramid scheme and you can almost be assured that if you are attending a seminar and they push a high ticket product within it, showcase HUGE successes, you are getting involved in something that is likely illegal, if not working on the fringes of illegality. 

      I am really glad you didn’t fall for the scheme, but it is unfortunate your friend did.  If they were unable to get their money back from their investment and they believe it is a pyramid scheme, recommend to them they contact their local regulatory authorities (FTC if you are located in the US, otherwise Google whom your regulatory entity is).  

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