From: barrypa@wam.umd.edu (Barry E. Henderson)
Subject: Pyramid Schemes (was Re: legal questions about MLMs)
Organization: University of Maryland at College Park
Distribution: na
Date: Fri, 10 Apr 1992 21:44:52 GMT

In article <1992Apr10.042335.11820@samba.oit.unc.edu> Eli.Mantel@bbs.oit.unc.edu (Eli Mantel) writes:
>There are legal pyramid schemes, and illegal pyramid schemes.
>A further distinction is between ethical and unethical pyramid schemes.

This brings up a good question, what is a pyramid scheme?  The word "pyramid
scheme" does not appear in the dictionary so what is its definition.  It
seems that everyone has a different definition for it.  Let me give you what my
"Webster's New Twentieth Century Dictionary Unabridged Second Edition" states:

pyramid (n):
	"in geometry, a solid figure having a polygonal base, the sides of 
	which form the bases of triangular sufraces meeting at a common
	vertex".
pyramid (v.t):
	"to build up in the form of a pyramid; to collect in a mass or heap".
	"to engage in (a series of buying or selling operations) during an
	upward or downward trend in the stock market, working on margin with
	the profits made in the transactions".	

scheme (n):
	"a carefully arranged and systematic program of action; a systematic
	plan for attaining some object".
	"an orderly combination of things on a definte plan; system".
	"a plot; underhand intrigue".
	"a visionary plan or project".

Which of these definitions combined together get the meaning you want, it is
pretty vague?  Ex.  Are you reffering to shape, business practice, plan, etc..

>All MLM's are pyramid schemes.  That is to say, they have a marketing
>plan which includes remuneration for recruiting people.  One does not have
>to be paid "per recruit" for this to apply -- one can be
>paid on the basis of the recruits' sales.

True, what makes this different from a retail store manager hiring a sales-
person, to sell product over the counter for commision?  

>Each "level" of recruits constitutes a new "base" for the pyramid.  In
>practice, an MLM does not grow as a mathematically perfect pyramid, but this is
>of no consequence.  That base of the pyramid is typically equal to or
>larger than the rest of the entire pyramid, and as most MLMers will tell
>you, it takes time to make money in MLM -- the people in this new base
>are therefore not making any money.

True, a salesperson makes money only on retail sales, not on the management
of others.  This is logical, the new salesperson has no experience yet.
Once that salesperson has experience, after a while (weeks,months,years...),
they can move up to manage others, and receive more income.

>Why MLMs are legal
>
>There does not seem to be anything wrong with the overrides provided by
>Avon. But MLM generally turns things inside out, placing the emphasis
>on recruiting, with very little concern for sales.

This depends on the company & sponsor you are dealing with, not all MLMs
are this way.  You should read "Market Wave" or March issue of "Success"
magazine, or any other magazines recommended by MLMers to distinguish
which companies practice this approach. 

>The FTC basically was unable to write regulations that could legally
>discern the difference between Avon's practices and Amway's practices.  Since
>on was okay, it followed that Amway was okay also.
>
>In an effort to avoid some even less ethical organizations than Amway, the FTC
>wrote some rules which identified certain specific practices that would
>be illegal, yet nevertheless made it possible to run a legal pyramid
>scheme such as Amway and numerous other MLMs.

Well, I don't have this information, so I neither agree or disagree.


>		Eli
>		Dream Thief

By this statement, I presume that you have some direct or indirect experience
from a MLM long ago. I don't know if you are truely interested, but you 
should educate yourself a little more on the practice of successfull MLMs.
You should start by reading the messages in this newsgroup. 


Barry Henderson
barrypa@wam.umd.edu