Identifying Illegal Pyramid Schemes
By Jeffrey A. Babener
Copyright © 1992
|The last thing you want to do is become part of a multilevel
system that is, in reality, an illegal pyramid scheme. According to the Direct Selling
Education Foundation, a pyramid scheme is an illegal scam "in which large numbers of
people at the bottom of the pyramid pay money to a few people at the top. Each new
participant pays for a chance to advance to the top and profit from payments of others who
might join later."
Both MLM and pyramids have multilevel payment systems, but that is where the similarity ends. Network marketing is a legal, ethical manner of doing business. Pyramids are illegal, fraudulent con games. In MLM, you are a legitimate seller of a product or service and business opportunity. In a pyramid, you are a crook.
But how do you tell them apart? Jeffrey Babener, a network-marketing legal expert and attorney based in Portland, Oregon, states that there is no single authority on the subject; state and federal authorities have different ways of looking at the issue. However, in his book The Network Marketer's Guide to Success (written with David Stewart: Legaline Publications, 1990), Babener and Stewart have identified red flags that may cause law enforcement agencies to investigate a business:
|Jeffrey A. Babener
Babener & Associates
121 SW Morrison, Suite 1020
Portland, OR 97204
|Jeffrey A. Babener, the principal attorney in the
Portland, Oregon law firm of Babener & Associates, represents many of the leading
direct selling companies in the United States and abroad.
|Main Library || MLM Legal || Babener & Associates || MLM Articles || Power Index|