Lawyers Protecting Victims of Pyramid Schemes
A pyramid scheme is a temporary business model what promises customers payment simply for getting other people to involved in the scheme. The pyramid scheme usually involves promising a new good or service, which will be very popular or profitable. This type of scheme cannot sustain itself because people must continue to get involved, stay involved and recruit others or the pyramid will collapse. The two signs of a pyramid scheme include a lack of retail sales coupled with inventory loading. The Federal Trade Commission was established to protect consumers from becoming victims of pyramid schemes and monopolies. Multi-leveling marketing is often associated with pyramid schemes since it requires people to sell a product while other people ultimately profit from the product selling.
Federal Trade Commission
The Federal Trade Commission is a government organization, which ensures that capitalism and its markets work properly and effectively. Congress created this agency in 1914 to make the economy stronger and expand the awareness of legitimate goods and services. The Federal Trade Commission advises people to research companies before becoming involved, getting others involved or selling a product. The agency acts to prevent monopolies from forming, so that no on company or person has complete control over one market or several markets. The commission investigates companies that complete unfair practices but advertise themselves as legitimate sellers of goods or services and financially hurts consumers. The Federal Trade Commission has a history of prosecuting companies that use multi-level marketing practices in the United States to hide their status as a pyramid scheme.
Multi-level Marketing
Multi-level marketing (MLM) is a business practice in which salespeople are compensated for individual sales as well as the sales of people they recruit as salespeople. This marketing practice is controversial because it has the same business model as the illegal pyramid scheme, since if people are not recruited to sell the good or service, than the business does not profit and stay alive. These types of marketing models include high start up costs called marketing kits, requiring memberships, and price fixing. MLM has become very prominent online in the digital age, with companies claiming to be marketing companies but are really pyramid schemes just looking for masses of people to join and get involved. The Direct Selling Association is a lobbying group that fights for legitimate marketing companies and prevents sellers from becoming victims of a pyramid scheme. They investigate thousands of companies using multi-level marketing practices to determine if they are pyramid schemes. One way to figure out if a company using MLM practices is a pyramid scheme is by finding out if the company provides commissions for recruiting new salespeople to the company. This style of earning money by getting others involved creates the pyramid of financial gain, which collapses when people stop getting involved.
Pyramid schemes are becoming an increasing problem without the United States and are only becoming worse due to the vast nature of the Internet. These schemes promise goods, services and money to people who get involved and invite their friends, but ultimately fail when the growth slows down and stops. Multi-level marketing is a style of marketing associated with pyramid schemes and can help identify a legitimate business from a scheme. The Direct Selling Association helps identify good multi-level marketing practices and exposes pyramid schemes and marketing companies that disguise pyramid schemes.
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Category: Family Finances, Law
