October 8, 2015
Today, many multilevel marketing, or MLM, programs operate legitimately. Problems occur when the design of a sales program violates laws prohibiting pyramid schemes. Sometimes Florida residents find distinguishing legal MLMs from scams, such as pyramid schemes, confusing.
Why Pyramid Schemes Pose Problems
Laws exist in Florida and the federal government prohibiting pyramid schemes because these types of marketing ventures do not really promote the sale of products or services. Instead, a pyramid program pays distributors for their recruiting efforts. As more people come into those types of organizations, typically money flows towards the individuals who entered the program at earlier points in its operation.
What is the problem with a business pyramid? Essentially, these organizational structures eventually bilk some recruits because everyone derives income as a result of the recruiting process, not sales. To appreciate this situation fully, simply consider the plight of the last people to join a pyramid scheme. With everyone else positioned in the marketing organization at levels above them, these people would earn no income.
The sales of goods and services separates a scam from a legitimate business enterprise. If a consumer encounters a program offering few products or services for sale but paying high commissions for recruitment alone, they should review the details closely.
Pyramid Schemes and Multilevel Marketing Features to Consider
A wide array of different MLM programs exist today. The United States Securities and Exchange Commission sets out several features which may help consumers identify pyramid scams. Some of these behaviors include:
– The company does not sell products or services;
– Recruiting remains the central focus of the business;
– A few senior distributors generate huge sums within a brief period of time;
– Substantial upfront cost to “join,” even if it includes a “starter” product package;
– Retail sales do not produce revenues;
– The firm asks distributors to “buy” positions in its company hierarchy.
These “red flags” alert consumers to the possibility of a pyramid scam, and Florida residents should evaluate business plans carefully.
Contact Khonsari Law Group for Legal Representation
The Khonsari Law Group cares about assisting people in Florida as they seek to distinguish legitimate multilevel marketing from pyramid scams. There can be legal and financial consequences for those connected to fraudulent activity. Contact us today for a case evaluation.