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The difference between MLM and pyramid schemes

| Apr 20, 2021 | White Collar Crimes |

White-collar crimes typically refer to non-violent financial fraud committed for personal again using deception or omission. A multi-level marketing pyramid scheme in Michigan is one type of white-collar crime, but not all MLMs are pyramid schemes.

MLM

While the main purpose of both a pyramid scheme and an MLM is to promote financial independence for members, there are several differences. An MLM commonly involves selling directly to the public via word of mouth, and the seller may or may not have to pay for materials. The seller makes money from commissions they earn from direct sales and the commissions they earn from sellers below them. A legitimate MLM may offer training as well as buy back products if a seller leaves the company.

A benefit of an MLM is that it helps a business gain a larger customer base from across the country. A seller benefits from being their own boss, but the sellers at the bottom may find it harder to make a profit.

Pyramid schemes

A pyramid scheme does not sell a product or service but is disguised as a legitimate MLM. Recruiting is heavily encouraged as the only way members can earn a profit, and the scheme fails without new enrollments.

A pyramid scheme usually requires members to purchase expensive materials and does not buy back products or offer training. It usually promises big returns from a small investment with little effort in a short time, such as a Ponzi scheme. The investors think the scheme has worked, but the profit comes from the investment fees of new members.

The government makes effort to combat white-collar offenses such as pyramid schemes by enacting stiff penalties. People accused of committing fraud have the right to an attorney to defend them against such charges.