Generally, MultiLevel Marketing can be an attractive business opportunity. It offers the opportunity to become part of a system for distributing products to consumers. A multilevel marketing participant has the support of a direct selling company that supplies the products and sometimes offers training as well.
How MLM Works
As a consultant, an affiliate or distributor (different name for the same position) you make your money by selling the products to other multilevel marketing members. If they’re not already a member of your MLM company, you sign them up.
Besides earning money off your own sales, you also earn a percentage of the income generated by the distributors that you’ve acquired into the program (your downline). Most of the time there is bonus plan or a commission plan with set levels for bonuses (mostly cash) for selling a certain amount of the advertised product or signing up a certain number of new members. And being part of a well-run MLM business very often feels like being a member of a large family.
Ponzi schemes, frauds are designed to just lure people into the network in order to rip them off. an investment scam that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, rather than engaging in any legitimate investment activity, the fraudulent actors focus on attracting new money to make promised payments to earlier investors as well as to divert some of these “invested” funds for personal use
Like multilevel marketing, pyramid schemes depend on recruiting people to become a member/participant of the network. Like MLM, the pyramid scheme offers the opportunity to make money by signing up friends and family and by accomplishing certain levels of achievement.
Participating in a Ponzi scheme is an offense under the Criminal Code of some countries – like Canada and China, punishable by up to five years imprisonment. In jurisdictions where MLMs have not been made illegal, many illegal pyramid schemes attempt to present themselves as MLM businesses.
Ponzi Schemes Have Only One Purpose:
The entire purpose of a pyramid scheme is to rip off people and then to use them to recruit other distributors.
The entire purpose of legitimate MLM-system is to sell products. The theory behind MLM-system is that the larger the network of members/affiliates/distributors, the more product the business will be able to sell.
Wave of Crypto Ponzi Schemes during the past years:
Ponzi scheme organizers often use the latest innovation, technology, product or growth industry to entice investors and give their scheme the promise of high returns. Potential investors are often less skeptical of an investment opportunity when assessing something novel, new or “cutting-edge.”
As virtual currencies have recently become popular and were supposed to make people rich. Fraudsters were enticed to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulently, or simply fabricated, mining or trading investments or transactions. These schemes often promise high returns for getting in on the ground floor of a growing Internet phenomenon.
Fraudsters are also attracted to use virtual currencies to perpetuate their frauds because transactions in virtual currencies supposedly have greater privacy benefits and less regulatory oversight than transactions in conventional currencies.
Checklist for Recognizing a Crypto Ponzi Scheme
- Promise of high sometimes even “guaranteed” investment returns with little or no risk. As a rule, yielding higher returns typically involve more risk.
- Promise of consistent returns: As a rule, investments tend to go up and down over time, especially those seeking high returns,
- Secretive and/or complex strategies and fee structures.
- Issues with paperwork. Be skeptical if you are refused to get more information on the investment in writing.
- Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out your investment. Ponzi scheme organizers sometimes encourage participants to “roll over” promised payments by offering higher investment returns.
- Are you required to “invest” a large amount of money up front to become a member? Legitimate MLM businesses do not require large upfront payments.
- Is there any mention of or attention paid to a market for the product or service? Multilevel marketing depends on establishing a market for the company’s products. If the company doesn’t seem to have any interest in consumer demand for its products, don’t sign up.
- Is there more emphasis on recruitment than on building up a market for the product or service? The Ponzi scheme focuses on fast profits from signing people up and getting their money.
These next two questions will help you determine what the focus of the company is:
- Is the plan designed so that you make more money by recruiting new members rather than through sales that you make yourself? This is the signature of a ponzi scheme operation.
- Are you offered commissions for recruiting new members? Or for selling products: Another ponzi scheme trademark is that the number of people who are willing to sign up that matters.
How to Protect Yourself
If you identify a potential business opportunity, always do your own research:
° do a check the people behind the business opportunity offered.
° And listen carefully when you’re at that MLM recruitment meeting. Inflated claims for the amazing amounts of money you’re going to make should set your alarm bells ringing.
Also published on Medium.