Are Money Pyramids Legal

Posted by davepowers Category: Uncategorized

The Federal Trade Commission warns against “involvement in plans where the money you earn is primarily based on the number of dealers you recruit and your sales to them, rather than your sales to people outside the plan who intend to use the products.” [19] BurnLounge, Inc. was a multi-level online music marketing company founded in 2004 and based in New York City. In 2006, the company said that 30,000 members used the site to sell music through its network. In 2007, the Federal Trade Commission sued the company for an illegal Ponzi scheme. The company lost the lawsuit in 2012 and lost the appeal in June 2014. In June 2015, the FTC began returning $1.9 million to people who had lost money under the program. [74] Multi-Level Marketing (MLM) is a legal affairs program. This business model involves the sale of real goods or services by dealers or MLM participants. Distributors are paid for the MLM products and services they sell. You can also derive revenue from sales from the distributors they have recruited and the people who then bring in those recruits. In August 2015, the U.S. FTC filed a lawsuit against Vemma Nutrition Company, an Arizona-based multi-tiered supplement marketing company accused of operating an illegal Ponzi scheme.

In December 2016, Vemma agreed to a $238 million settlement with the FTC that excluded the company from “pyramid scheme practices,” including commercial enterprises focused on recruitment, misleading tax returns, and unsubstantiated health claims. [75] [76] The distinction between legal and illegal systems can be difficult to distinguish. Several leading companies called themselves MLM organizations, but were later sanctioned for operating an illegal Ponzi scheme. For example, Herbalife, the once popular dietary supplement and skincare company, found itself in trouble. The FTC investigated complaints that it provided misleading information about how much money its merchants could make by selling products. The company eventually settled a $200 million lawsuit and was forced to restructure, but it continued to operate. While they wait, they recruit others. When the group runs out of recruits, the money stops flowing. People in the upper layers of the pyramid usually benefit, while those in the lower layers usually lose money. Since most program members are at the bottom of the ladder, most participants will not earn any money. In particular, if the system collapses, most of the members will be in the lower layers and therefore will have no way to benefit from the system; Nevertheless, they will have already paid to register.

Therefore, a pyramid scheme is characterized by the fact that a few people (including the creators of the system) earn large sums of money, while subsequent members lose money. For this reason, they are considered fraud. [3] Ponzi schemes are illegal in many countries. The pyramid model of benefiting from a network of contacts often forces individuals to recruit family members, friends and acquaintances. This can ultimately strain relationships. Investors would be well advised to avoid such systems. Many potential entrepreneurs have unconsciously become entangled in pyramid schemes disguised as business opportunities. If you have suffered financial losses due to illegal business practices, talk to your state`s attorney general. Pyramid schemes are illegal in New York State, as well as in many other states. Section 23A of the New York State General Business Act § 359-fff establishes criminal liability for initiation of and participation in pyramid schemes (also known as chain distribution systems). Matrix systems use the same fraudulent and unsustainable system as a pyramid; Here, participants pay to sign up for a waiting list for a coveted product that only a fraction of them can get.

Since matrix schemes follow the same laws of geometric progression as pyramids, they are subsequently doomed to collapse. Such schemes work as a queue in which the person at the top of the queue receives an item such as a TV, game console, digital camcorder, etc.