How do direct sales differ from pyramid and Ponzi schemes?

On Behalf of | Oct 20, 2021 | White Collar Crimes

The business industry in New York City is bustling and many people are either part of a large conglomerate or they may simply be a small business owner themselves. Those who choose the small business route often are attracted to offers that promise a big return for relatively little work. However, these offers may be legal direct sales enterprises, illegal pyramid schemes or illegal Ponzi schemes.

What is a legal direct sales enterprise?

Some business opportunities are legitimate, legal direct sales enterprises. Also known as multi-level marketing, a person purchases legitimate products to sell. In addition, if a person recruits others to join the enterprise they receive a percentage of that person’s sales. The key is that there is always a legitimate product being sold and the focus is on selling that product. That is what makes direct sales enterprises legal.

What is a pyramid scheme?

Pyramid schemes are illegal. In a pyramid scheme, the initial perpetrator recruits others to invest in the scheme and who in turn recruit more people to invest in the scheme, etc. There might be a product involved, but money is made through recruitment alone. Each investor pays the person who recruited them a certain amount for the opportunity to sell the “item” and must also share their proceeds with their higher-ups.

What is a Ponzi scheme?

Ponzi schemes are illegal, fraudulent investment enterprises. The investors give money to a “manager” who promises they will receive a significant return on their investment. Then when the investors want to cash in on their investment then they are paid using funds brought in by later investors. The entire operation is concealed, and in fact no real investment activities are being performed.

Ensure your direct sales activities are legal

If the difference between direct sales, pyramid schemes and Ponzi schemes is confusing, do not worry. The lines between the three are blurred, and many people are duped into believing they are entering a legal enterprise when actually they are committing a white collar crime. If you have concerns about a business opportunity you are about to take it can help to seek the advice of a professional so you can make an informed decision.

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