The major problem with this type of scheme is that to make large amounts of money, the distributor needs to be at the top of the pyramid. According to the FTC, state laws against pyramiding say that a multilevel marketing plan should only pay commissions for retail sales of goods or services, not for recruiting new distributors. Pyramid programs that pay commissions for recruiting new distributors eventually collapse when no new distributors can be recruited. And when the program collapses, most people lose their money. New pyramid schemes are now on the Internet in the form of cyberspace chain letters.
People pay to join programs with promise of big profits from membership fees paid by new recruits.
Sometimes there are false representations that the money made by recruiting others will go to charities. Scams Against Businesses. Entrepreneurs looking to start a business are not the only victims of fraud. Businesses, from large corporations to small home-based businesses are targets for a variety of illegal schemes. Understand the offer.