04/11/2020 by On behalf of Law Office of Michael S. Rothman | Oct 25, 2018 | White Collar Crimes |
Can multilevel marketing be considered a white-collar crime?
Multilevel marketing businesses are a hot topic right now. Many people in Rockville, Maryland, enjoy selling health supplements, makeup, leggings, and oils.
Not only does this earn them money, but if they sign up additional consultants, they could see their paychecks grow. However, it is very important to understand the difference between a lawful multilevel marketing enterprise and its unlawful cousin: a pyramid scheme.
Pyramid schemes are a white-collar crime that is based on a fraudulent hierarchy. New investors are at the bottom of the pyramid. They fund the enterprise in the form of paying money to earlier investors on the promise that they’ll see high returns. Generally, no products are actually sold in a pyramid scheme. Instead, the money simply comes from an influx of investors. These funds may leave those at the top of the pyramid in a good financial position, but the same cannot be said of those at the bottom of the pyramid, who do not see a return on their investment. As time goes on, the pyramid’s debts grow larger than its assets, necessitating more investors. Eventually, a pyramid scheme will topple, leaving investors at the bottom of the pyramid with nothing to show for their investment.
Multilevel marketing enterprises, on the other hand, do involve the sale of a product. While they may also involve recruiting new consultants, existing consultants who recruit new consultants will generally see a return on this investment. In addition, a consultant does not have to recruit new consultants, as they can simply sell the company’s products. Under current regulations, a multilevel marketing enterprise is lawful if the majority of its profits are made through product sales to end-user consumers (not consultants), rather than making the majority of its profits through the recruitment of consultants and making it mandatory that these consultants pay for their own inventory.
Therefore, consultants involved in many of today’s popular multilevel marketing enterprises can generally rest assured that they are not committing a crime. However, it is not unknown for regulators to eventually find that a multilevel marketing enterprise is actually a fraudulent pyramid scheme. By understanding the difference, individuals may be able to avoid white collar criminal charges the harsh penalties that often accompany them.