Report 76 Business Practices Committee

The section is based on a brochure of the Direct Selling Education Foundation (the Foundation), a Washington DC not-for-profit public educational organization. In a brochure of the Foundation pyramid schemes are described as illegal seams in which a large number of people at the bottom pay money to a few people at the top.

The Foundation states inter alia:

"That thousands of Americans have lost millions of dollars participating in pyramid schemes. Many of those that lost money, the victims, knew they were gambling, although they did not know that the odds were rigged against them. In order for everyone in a pyramid scheme to profit, there would have to be a never-ending supply of new participants. In reality, however, the supply of participants is limited.

Pyramiding is based on simple mathematics: many losers pay a few winners.

Participants in a pyramid scheme are, conscious or unconsciously, deceiving those they recruit. Few would pay to join if the diminishing odds were explained to them.

Pyramid promoters are masters of group psychology. At recruiting meetings they create a frenzied, enthusiastic atmosphere where group pressure and promises of easy money play upon people's greed and fear of missing a good deal. Thoughtful consideration and questioning are discouraged. It is difficult to resist this kind of appeal unless one recognises that the scheme is rigged against you.

Some pyramid promoters try to make their schemes look like multilevel marketing methods. Multilevel marketing is a lawful and legitimate business method (in the United States of America) which uses a network of independent distributors to sell consumer products.

To look like a multilevel marketing company, a pyramid scheme takes on a line of products and claim to be in the business of selling to consumers. However, little or no effort is made to actually marketing the products. Instead money is made in typically pyramid fashion, namely, from recruiting. Often products which have no established market value, such as new miracle products and exotic cures are "sold".

How to tell the difference between a pyramid and a legitimate multilevel marketing company:

Pyramids seek to make money from you (and quickly). Multilevel marketing companies seek to make money with their clients as the clients build their businesses as well as the multilevel company with consumer products. Consumption of these products ensures that repeat sales are possible.

Pyramids often disguise entry fees as part of the price charged for the required "purchases" training, computer services and product inventory.

Multilevel marketers sell products to final consumers. If there are no sales to final consumers one should suspect that one is dealing with a pyramid scheme".