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Pyramid Schemes

The speaker claims that you can get rich, like him, by recruiting people to become distributors in an exciting new company. He explains that if you bring people into the business, and they recruit more people, you would earn a percentage of all of their sales.

You buy hundreds of dollars worth of the company’s products on credit and become part of the speaker’s “downline.” Not only is it impossible to sell the products you bought, but now even your friends and family are avoiding you.

The Law on Pyramid Schemes

Many companies that operate through network or multi-level marketing are in fact pyramid schemes. Promoters often claim that their program is legal because a product or service is offered. However, under North Carolina law, a pyramid scheme is any plan in which a participant (1) pays money (2) for the chance to receive money (3) upon the introduction of new participants into the program, whether or not a product or service is offered as well. In North Carolina it is a felony to establish or operate a pyramid scheme, and someone who promotes or participates in one can be charged with a misdemeanor.

Tips to Avoid Scams

Look for the following warning signs to avoid getting trapped in a possible pyramid scheme:

  • You’re invited to attend a meeting or listen in on a conference call to learn about a new money-making opportunity. The person who invites you may brush off your questions and tell you that his or her sponsor will explain it much better at the meeting.
  • Employment ads in newspapers or on the Internet are sometimes used to recruit for pyramid schemes. You come to what you think will be a job interview, but is in reality a recruitment meeting for the pyramid scheme.
  • Many pyramid promoters boast about high earnings of a few top performers (“thousands per week” or “six-figure income”). Be skeptical about earnings claims. Most people recruited into the organization aren’t making those amounts, including the individuals making the claims.
  • The focus of the program is recruiting new representatives and selling the products to new members as they join, not selling to customers.
  • At recruitment meetings and in social media posts, the emphasis is on potential earnings and “building your business” with very little information given on how to sell the product.
  • The products or services are gimmicks or overpriced. Examples are health and beauty aids, new inventions, or “miracle” cures.
  • When asked if the program is a pyramid, promoters may make comparisons to corporations where one person at the top makes the most money. What they don’t say is that corporations do not seek an unlimited number of employees or pay their employees solely for recruiting other employees.
  • Never sign a contract or pay any money to participate in a multi-level marketing program without reading all of the paperwork. Talk the opportunity over with a spouse, friend, accountant or lawyer.  Don’t sign it if you’re being pressured to make a quick decision before you have time to review the facts.
  • If you join a pyramid scheme, remember that your decision will affect everyone you bring into the program. These schemes cost thousands of North Carolina residents millions of dollars each year and can damage relationships with friends and family.

We Can Help

If you have a complaint about a pyramid scheme, contact us for help or call toll free within North Carolina at 1-877-5-NO-SCAM.