A lot of people ask if an MLM is a scam or pyramid scheme. I starting hearing that question decades ago and people are still asking. Part of it is because of consumer ignorance. Not trying to say consumers are stupid, it’s just that we don’t get educated about network marketing in popular media or through school. Another issue is that the law hasn’t clearly defined the rules. That’s why companies like Herbalife are going through legal issues.
Here’s a quote from Market Watch:
On firm blog Crimeinthesuites.com, David Deitch and Jeff Ifrah point out that for the Federal Trade Commission the Herbalife case could constitute a valuable opportunity to define its rules on what constitutes a pyramid scheme and how it differs from a multi-level marketing (MLM) company. The two attorneys explain that the only FTC guidelines for MLM companies that are currently in effect stem from litigation in 1979 when Amway, a direct selling company, was accused of running an illegal pyramid scheme. With the ongoing growth of the MLM industry — according to a study it was worth approximately $30 billion in 2012 — an increasing number of companies are facing the challenge of protecting themselves against pyramid scheme accusations. Aside from the guidelines following the Amway case and a staff advisory opinion in 2004, the FTC has provided little to no further definition on what constitutes a pyramid scheme and how companies can show that their operations are legitimate and legal.
You can find the full news release here.
It’ll be interesting to see the final outcome of all this. After all, it was all started because some entrepreneur wanted to make more money for himself.