The World of Scam Artists, MLM, and Pyramid Schemes

In such a fast paced world we live in today it can become increasingly easy to fall victim to pyramid schemes or MLMs,and in order to stay safe we must comprehend how these scams work.

By: Manuela Monteiro

Image describing a few simple steps in order to recognize a pyramid scheme.

“Hey hun, how are you? Just letting you know that I’m looking for a certified #bossbabe to join my business team and was curious if you wanted more info? Let me know!!”. If you’ve never received this type of message before, consider yourself lucky because you dodged a bullet! This is a common type of text sent by people looking to bring other distributors into their MLMs, or pyramid schemes. Unfortunately, many people have fallen prey to these schemes, and in the age of social media, it is frighteningly common to encounter these types of ‘business’ deals. In order to avoid joining one of these predatory schemes, it is crucial to recognize their patterns and their functioning.

So, what is an “MLM”? Multi-level marketing, most commonly referred to as MLM, is a type of marketing strategy that involves unsalaried and hierarchical sales teams who sell a product to consumers in a direct format, and profit off of hiring more distributors. The sellers are paid a commission whenever a product is sold and when they add to their downline, which is a line of other distributors hired directly by the person. The commission is paid on many different levels, when a single sale is done, and is also based on the total volume of sales. In essence, an MLM takes a pyramid-like structure to its strategy, at times referred to as network marketing. But what is the difference between it and a pyramid scheme?

A stark contrast is that MLMs are recognized legitimately, meaning they are legal, and it’s a channel where real products are sold. Pyramid schemes, however, are illegal, and don’t sell any real product, usually claiming to provide a future ‘investment’ which turns out to be false. The premise of the pyramid scheme is that the enrollees have to pay a fee prior to enrolling in the business, and the previous participants only make money from the enrollment fees rather than by sales of a real product. The starter of a pyramid scheme will usually go out and hire 10 more people, and each of those has to pay enrollment fees to them and is then sent out to hire more 10 people each. The new hires will have to pay fees to the two tiers of people, and so on and so forth. This cycle goes on until it reaches a limit of people who will join them, and whilst it keeps going the only people who truly profit are those at the top. However, the confusion between the two is that many times the pyramid scheme attempts to disguise itself as an MLM, but they are fraudulent and doomed to failure.

They are certain to fail because the profit is seldom dependent on the hiring of new recruits, and the number of people within a given community is limited, therefore once that limit is reached, the pyramid collapses. Once it collapses, usually those at the top get to walk out with large sums of money, whilst those at the bottom leave empty-handed. So if they are so predestined to fail, why do people still join them? The answer is the enticing lies made by the creators. Usually, the deal made by the scam leaders is that there will be an extremely high amount of money produced in a short amount of time, basically a ‘get-rich quick’ scheme. The people who usually join pyramid schemes are either motivated by greed, due to the promise of quick money, or due to being misled, believing that they are investing in something that’ll actually have a large payoff in the future. Many times these schemes go after young women, especially those who have just had children. Due to the rise of social media, the idea that extreme wealth is something not only easily accessible, but that can happen to anyone, leads many people to fall victim to schemes that promise the life of celebrities and influencers.

Unfortunately, despite MLMs being legal, many times they end up having just as many negative repercussions on their distributors as pyramid schemes. Even though at the end of a distributor’s involvement with the MLM the business will purchase back all the product, the bulk of the profit is actually made from recruiting people, not selling products. An example is a report showing that 93% of Nu Skin distributors did not make any commission in 1 month. However, it is a somewhat popular business strategy due to the fact that they shift recruitment of new people to the pre-existing ones, giving them compensation for creating a down line, essentially removing a Human Resources department.

In the age of the internet, we are seeing a rise in scams created by influencers and content creators, especially in the promise of teaching their viewers how to become successful YouTubers quickly. Due to the rise in influencers as a whole, wealth is becoming something that more and more people believe to be a requirement to be accepted, and if they don’t have it, it becomes a personality flaw. A popular example is the YouTuber Nate Garner, who created his own course teaching people how to gain 1 million followers on YouTube, where there is a requirement to pay a fee ahead of accessing the content, and there’s more content limited to premium members which have to pay even further to access. The content is basic and provides tips that anyone can find for free online, and doesn’t include a guaranteed formula to success. Since it is packaged like a certain chance of triumph, many young fans are enticed, and purchase the course believing they too will become a massive YouTube star.

However, the scams, despite being harmful and manipulative, don’t seem to have such dire consequences as pyramid schemes. The schemes have caused many people to have to deal with financial loss, especially those who are at the bottom of the pyramid. At times people will bring in friends and family members to join the scheme truly believing there will be a financial benefit to everybody, and in the end, all of them end up with great economic damage. Pyramid schemes are extremely severe, and are actual crimes, so it is crucial that when joining a new business venture or company, we stay aware of the promises and outline that are being made to us. In order to stay safe from these schemes, maintain well informed about how these schemes function and the type of people they go after, always alerting others about scams of those sorts.