If you have used a multi-level marketing (MLM) business scheme in the past, you may not have done anything wrong. However, some of these programs quickly begin looking like pyramid schemes. Sometimes, people get accused of being part of a Ponzi scheme working with MLM as well.
Well, the truth is that these three types of schemes are very different, and only two of them are not legal.
Multi-level marketing
Multi-level marketing is totally legal in most cases. This is because there is a real product being sold, and investors are actively recruiting people to help them sell it. They get a portion of those sales as incentives.
Pyramid schemes
Multi-level marketing is not the same in a pyramid scheme, even though it may look like a similar structure. With a pyramid scheme, investors are paid by recruits. The active goal is to keep recruiting, and the focus is not on selling any kind of product in most cases. Fast profit goals by asking other people to join your team with no sales goals is a red flag that an opportunity is not an MLM but instead potentially a pyramid scheme.
Ponzi schemes
Ponzi schemes are more intense. They require fraudulent investing. By accepting new investments, early investors are able to turn a profit. Newer investors only get profits if even more investors join the company or invest with it. When no more people join, many people, especially new investors, lose their money. In a Ponzi scheme, it’s typical for only the original backers and investors to get repaid or to reap a profit.
It’s important not to get caught up in the wrong type of company. If you do get involved in a pyramid or Ponzi scheme, you could be accused of white-collar crime and fraud in the future. If so, you will need to look into a strong defense against the allegations, because the penalties for fraud are significant. Many of these cases are charged at the federal level, so you could be looking at time in prison if you cannot build a strong enough defense against the accusations you’re facing.
