Multilevel
Marketing Plans |
Produced in cooperation with the North
American Securities Administrators Association
Multilevel marketing plans, also known as "network" or
"matrix" marketing, are a way of selling goods or services through distributors.
These plans typically promise that if you sign up as a distributor, you will receive
commissions -- for both your sales of the plan's goods or services and those of
other people you recruit to join the distributors. Multilevel marketing plans usually
promise to pay commissions through two or more levels of recruits, known as the
distributor's "downline."
If a plan offers to pay commissions for recruiting new distributors, watch out!
Most states outlaw this practice, which is known as "pyramiding." State laws
against pyramiding say that a multilevel marketing plan should only pay commissions for
retail sales of goods or services, not for recruiting new distributors.
Why is pyramiding prohibited? Because plans that pay commissions for recruiting new
distributors inevitably collapse when no new distributors can be recruited. And when a
plan collapses, most people -- except perhaps those at the very top of the pyramid -- lose
their money.
The Federal Trade Commission cannot tell you whether a particular multilevel marketing
plan is legal. Nor can it give you advice about whether to join such a plan. You must make
that decision yourself. However, the FTC suggests that you use common sense, and consider
these seven tips when you make your decision:
- Avoid any plan that includes commissions for recruiting additional distributors. It may
be an illegal pyramid.
- Beware of plans that ask new distributors to purchase expensive inventory. These plans
can collapse quickly -- and also may be thinly-disguised pyramids.
- Be cautious of plans that claim you will make money through continued growth of your
"downline" -- the commissions on sales made by new distributors you recruit --
rather than through sales of products you make yourself.
- Beware of plans that claim to sell miracle products or promise enormous earnings. Just
because a promoter of a plan makes a claim doesn't mean it's true! Ask the promoter of the
plan to substantiate claims with hard evidence.
- Beware of shills -- "decoy" references paid by a plan's promoter to describe
their fictional success in earning money through the plan.
- Don't pay or sign any contracts in an "opportunity meeting" or any other
high-pressure situation. Insist on taking your time to think over a decision to join. Talk
it over with your spouse, a knowledgeable friend, an accountant or lawyer.
- Do your homework! Check with your local Better Business Bureau and state Attorney
General about any plan you're considering -- especially when the claims about the product
or your potential earnings seem too good to be true.
For More Information
The FTC works for the consumer to
prevent fraudulent, deceptive and unfair business practices in the
marketplace and to provide information to help consumers spot, stop and
avoid them. To file a
complaint or to get free information
on consumer issues, visit
www.ftc.gov or
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft and other fraud-related
complaints into
Consumer Sentinel, a
secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
|
FEDERAL TRADE COMMISSION |
FOR THE CONSUMER |
1-877-FTC-HELP |
www.ftc.gov |
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November 1996 |