Sapone & Petrillo, LLP
Call Today 212-349-9000

Distinguishing multi-level marketing from pyramid schemes

No one ever wants to be accused of fraud, and like most in New York, you likely do not believe that you ever will be. Yet there are potential pitfalls in almost any line of work where disputes can often lead to such allegations. Many have come to us here at Sapone & Petrillo LLP having been accused of a specific kind of fraud: a pyramid scheme. These are often closely associated with multi-level marketing. If you happen to work in a field that incorporates the latter, you should know what distinguishes them. 

According to the office of the New York Attorney General, multi-level marketing involves both the sale of products directly to consumers without and the recruitment of new salespeople. When your recruits sign on to participate in the business, you typically make a commission off their sales (on top of the money you already make for your own). 

The reason that multi-level marketing is so often confused for a pyramid scheme is that the business grows from the top down (like a pyramid). However, with a pyramid scheme, a small group of schemers profits off the investments of new investors. New investors may often also be asked to sell products, but that is typically secondary to the money they are asked to put in. 

There are two main differences between legitimate multi-level marketing pursuits and pyramid schemes. First, requiring a sizeable up-front investment is often a tale-tell sign of a pyramid (whereas your new recruits can simply sign up for a multi-level marketing campaign). Second, if you offer to buy back whatever products recruits do not sell, then it may be hard to argue that you are trying to defraud them. 

More information on the different types of fraud can be found here on our site. 

No Comments

Leave a comment
Comment Information

Sapone & Petrillo, LLP | One Penn Plaza | Suite 5315 | New York, NY 10119 | Phone: 212-349-9000 or 516-678-2800 | Map & Directions