Multilevel marketing plans are ways to sell goods or services through distributors. Typically, these plans promise that if you sign up as a distributor, you’ll get commissions not only from the sales you make, but also from the sales of the people you recruit to become distributors. These recruits sometimes are called your “downline.”
Pyramid Schemes are Illegal
Not all "multilevel marketing opportunities" are legitimate. Some are pyramid schemes, which are illegal under state and federal law. If the plan's way of making money is based not on selling a product or a service, but on recruiting new members into the plan in order to get paid, it is an illegal pyramid.
In these schemes, each participant puts up a set amount of money to "buy in," such as $1000. The potential for large sums of money is promised, and persons who get into the scheme early do make money. However, later participants get less and less because it becomes harder to find people willing to pay in $1000. Any offer that requires upfront money with promises of big profits that is dependent on recruiting others should be considered suspect. Beyond causing financial loss, these schemes put every participant in the position of scamming the people they recruit, thus commiting fraud themselves.
Beyond causing financial loss, these schemes put every participant in the position of scamming the people they recruit, thus commiting fraud themselves.
More information from the Federal Trade Commission.