FTC: Spotting an Illegal Pyramid Scheme 101
Your social media feed is abuzz with stories of people making serious money selling an energy drink. Not one to miss out an opportunity, you do a quick search and come across a viral video. The guy making the pitch insists you can make thousands of dollars a month. “Forget working 9 to 5. Join the Young People Revolution!” he says. You think to yourself, “I’m young people! And I can totally get on board with a revolution.”
Slow your roll, my friend. Before you shell out a wad of cash and start making pitches to your friends, you should know that the FTC just filed a complaint against the company behind the pitch. The FTC alleges Vemma is running an illegal pyramid scheme and is targeting college students.
Here are some telltale signs of a pyramid scheme — think of these as “Spotting an Illegal Pyramid Scheme 101”.
1: Recruit, recruit, recruit. If your income is based predominantly on how many people you recruit into the program, not how much product you sell, it’s a pyramid scheme. According to the FTC’s complaint, Vemma’s marketing and training materials emphasize recruiting other Affiliates. In fact, one of the masterminds behind the alleged scheme says Affiliates should focus on recruiting other Affiliates because customers are simply a “byproduct of the business.”
2: Buy our product, lots of it. Many pyramid scheme operations require participants to buy the product or other things to stay in good standing with the company. Vemma Affiliates are told to spend 150 bucks a month on products to stay in the monthly “bonus” pool, according to the complaint. That’s $1,800 a year!
3: Live the lavish lifestyle. The recruitment pitch says you’ll be living in the lap of luxury. It fails to tell you most people in a pyramid scheme lose money. Vemma made promises of luxury cars and travel to exotic destinations, but the company’s own income disclosures tell a different story: 9 out of 10 Affiliates made less than $6,200. And the FTC alleges even those figures are overblown because they don’t take into account expenses like the initial purchase and the monthly purchases.
If you’re tempted by a sales pitch that says you can make money selling products, find out what questions to ask before you buy in.