MLM scams have become a ‘gold mine for scammers’. In 2018, AARP conducted a study that found that 73% of salespeople who are part of these businesses, they don’t earn a dime or really lose money in this type of business. And, a report by the Consumer Awareness Institute gives a higher figure: 99%.
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Precisely because of the lack of profit, it is estimated that more than 28 million Americans have participated in this business model, but most of them retire in less than a year.
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The Federal Trade Commission defines MLM as “businesses that involve selling products to family and friends and recruiting others to do the same.”
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Warning signs of scams in multilevel businesses
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On its website, the Federal Trade Commission published this series of warning signs that you should be aware of before an MLM scheme that can reveal when one of these businesses may be fraudulent.
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- The promoters do extravagant promises about your earning potential.
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- Promoters emphasize recruiting new distributors for their sales network as the real way to make money.
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- Promoters play on their emotions or use high pressure sales tacticsperhaps saying that you will lose the opportunity if you don’t act now and they try to dissuade you from taking the time to study the company.
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- Distributors buy more products than they want to use or can resell, just to stay active in the company or to qualify for bonuses or other rewards.
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How to know if the multilevel business is worth it
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For its part, the New York prosecutor’s office, Letitia James, says that “the easiest way to avoid being scammed is obviously not to participate in any promotion that looks like a multi-level scheme.”
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And he advises, that if someone is tempted to participate in the business anyway, it is better to “Gather all the information about the company, its employees and its products or services. Obtain written copies of the company’s marketing plan, sales literature, contracts, etc.”
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If the company does not have such documentation, and does not explain its plans clearly, it is best to avoid entering into negotiations with it.
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Another piece of advice from that office is: “Before entering a pyramid sale, Find out if there is demand for that product or service. Is there a similar product or service on the market? If so, how well does it sell?
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If when asking yourself those questions, you notice that promoters seem to be making most of their money selling distributors or large start-up inventories to new recruits, walk away from it.
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Where to confirm if MLMs are legitimate
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You can confirm if the company is legal, by contacting:
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The New York State Attorney General’s Office
Investor Protection and Securities
28 Liberty Street, New York, NY 10005
Tel. 212-416-8816.
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