LESSON: Legitimate or Illegal Business

Multilevel or network marketing businesses can be legitimate or illegal, depending on their focus. Those focusing on making money through sales to the public are legitimate. Those making money primarily by recruiting salespeople, affiliates or distributors are illegal and referred to as pyramid schemes.

The Better Business Bureau warns you to watch for the following signs that a multilevel marketing opportunity is really a pyramid scheme:

• You are asked to recruit new salespeople as the primary way to make money. Carefully consider the training materials. Do they focus on selling to the public or recruiting?

• You are asked to buy regularly in order to get special discounts or privileges.

• You are promised a luxurious and rewarding lifestyle for very little work. If it seems too good to be true, then it is and you should walk away.

If you are uncertain about a multilevel marketing opportunity, BBB offers the following advice to evaluate before you sign a contract and hand over your money:

• Take your time to think and research before you sign a contract and invest your money. This means don’t sign at the “opportunity meeting.”

• Evaluate how and when you will be paid and what your expenses will be to determine if it is a profitable opportunity. Don’t just accept the claims of how much you can make.

• Get everything in writing.

• If part of the opportunity is to recruit new distributors, make sure that the reward or incentive isn’t greater than for selling to the public. Also, be realistic and honest in your pitch when you’re recruiting others or you could be held liable for false or inflated claims.

• Get contact information for someone with the company who can answer your questions and then contact them and ask questions.

• Ask the person recruiting you lots of questions about their own success. How much do they sell each year? How much is to distributors versus the public? How much were their expenses? How long have they been doing this? How many people have they recruited? Proceed as if no question is off limits when your own investment is on the line.

If you have encountered a pyramid scheme, you can report it to the FTC atwww.ftccomplaintassistant.gov, to the Attorney General at www.atg.wa.gov/file-complaint and to BBB at www.bbb.org/eastern-washington or by calling (509) 455-4200.

Erin T. Dodge, BBB editor


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