One white collar crime that can get you into trouble with the law is known as a pyramid scheme. This scheme is relatively easy to recognize and follows a predictable pattern.

How can you recognize a pyramid scheme?

Usually, the person at the top of the pyramid creates a fake or fraudulent business and asks others to pay a fee to join. At that point, they begin selling the same fraudulent items for compensation. Usually, these are intangible items like videos explaining how to make money with the system, which isn’t really a product at all. All the while, the person at the top of the pyramid collects fees from each of these members.

The problem with this kind of business is that the only people who make money are those who began early on. Eventually, there will be no more people who want to join, and that means those who have invested in the company stop making money.

Aren’t multi-level marketing businesses really pyramid schemes based on the above definition?

The above definition doesn’t mean that a multi-level marketing business is a pyramid scheme. This is a common misconception. With a multi-level marketing business, individuals make money by signing up to receive wholesale or marked down prices for products. They then sell those products and collect a profit.

If you’re accused of running a pyramid scheme but believe you’re running a multi-level marketing campaign, there is help for you. The definitions can be blurred, but you don’t deserve to have your reputation ruined when you’re an independent business owner with a real plan.