Legality
Whether a multi-level marketing program is legitimate or not will depend on what you know about the company. The best way to determine if a company is legitimate is to review their materials, ask a trusted advisor to thoroughly evaluate the program, and look at their earnings claims.
The Federal Trade Commission has the authority to investigate and regulate multi-level marketing programs. The agency has determined that some MLMs are pyramid schemes. This is because they promise large rewards in a short period of time without selling a tangible product. The FTC's business opportunity rule requires detailed information about the risks involved with purchasing from a given company.
An MLM business is legal if it pays its distributors for the work they perform. If a company pays its distributors more than they need to, it may be approaching pyramid scheme territory.
A company's return policy should also be a major red flag. If it's not in writing, the company's practices are likely illegal.
The legality of a pyramid scheme also depends on its structure. If a multi-level marketing program pays its distributors to recruit new members, the program is likely illegal. It's also difficult to hold a multi-level marketing company accountable.
MLM can be legal, but only if it's based on selling products, not recruiting. A pyramid scheme, on the other hand, is a type of investment program with a pyramid structure.
A pyramid scheme is a fraudulent scheme that promises high profits in a short period of time without offering a real product. Its promoters typically target Asian-American communities in California and New York.