Here’s Part II of our effort to bring simple clarification to one of the financial industry’s most complex business scheme (no, not banks, credit card companies or sub-prime lenders) – Ponzi vs. Pryamid
and the legitimate cousin, Multi-Level-Marketing (MLM). Again, not sexy or funny, but something you really should know!
Here’s a refresher from last week:
Ponzi = it’s all about that charismatic guy who gets you to invest with him, and he uses that investment to pay off others – rob Peter/pay Paul!
In response to the need to raise extra cash, consumers are now looking at work-at-home and multi-level-marketing strategies (most are found online) as a possible “business investment”. The bottom line – stay away from any investment opportunities where the focus and the payoff is on how many other “sales reps” you recruit – and the product is most often unknown, non-existent, or brushed over/pushed to the side.
I grew up on jokes about the Fuller Brush salesman (okay – I just dated myself). Fuller Brush is a long established multi-level marketing company, perfectly legal. We all have heard of Shaklee, Avon, Melaleuca and even those “adult themed” parties where a friend (or friend of a friend’s friend) invites you to buy a product and offers additional incentive (product or dollars) for you to become a distributor – making money on YOUR addition to the sales force and guaranteeing YOU can make money when you recruit others. This business model is legal because for the most part, the focus is on the product and the product is legitimate, is delivered, and consumed!
Now let’s look at another example. iJango located in Texas invites consumers to a local restaurant to hear about the wealth building opportunity which works like this: a consumer pays an upfront fee of $50 to join the program; is then encouraged to purchase a package program for $149.95 to increase likelihood of success and that package support requires $19.95 monthly fee. After this investment, the consumer will recruit other individuals to purchase the opportunity earning income on the commission of these recruits, and earn commission on revenue generated by Web site traffic and purchases through iJango Web site “portals”.
What do consumers say? Well, consumer experiences reported to BBB indicates they are uncertain as to what the actual product is (visit www.ijango.com and see what you think) and they have delayed availability or use of the iJango portals (the alleged source of the shared revenue!). iJango uses an alleged relationship with Yahoo, iTunes, Rhapsody and Google (see iJango Notices on website) but Rhapsody and Google confirmed with BBB they have no relationship with iJango.
And to bring it home locally, there’s the good old envelope stuffing scam. You respond to an ad offering high payout for working at home stuffing envelopes. By sending in an “advance fee”, the consumer receives in return copy of an ad to run in the local paper offering an envelope stuffing job and the money everyone sends in for the “start up kit” (which is the typed directions) is the profit earnings. In this case, this is clearly a pyramid scheme, illegal, and can lead to criminal charges. Remember when you were a kid and you got a chain letter and promise of riches if you just sent $1.00 to the top persons listed on the letter? That’s a pyramid scheme and thankfully I wasn’t arrested at age 12!
Let’s go to the bottom line:
- Avoid any plan that includes emphasis on commissions for recruiting additional distributors – they may be illegal pyramid schemes.
- Beware of plans that ask you to purchase expensive products and marketing materials upfront.
- Beware of plans that claim to sell miracle products or promise enormous earnings.
- Don’t pay or sign any contracts in an “opportunity meeting” or other pressure-filled situation – take it home, think it over – talk to a lawyer!
- Don’t fall for shills – “decoy” references paid by the plan’s promoter to lie about their earnings.
- Do your homework! Check with bbb.org and remember, all business opportunities located in Maryland must be registered with the State Attorney’s office.
Maryland Attorney General, Oversight of Business Opportunities
The Securities Division also regulates the sale of certain "business opportunities" in the state. Business opportunities are prepackaged small business deals offered mainly to novice entrepreneurs through classified ads, home seminars and business opportunity expos. Typical business opportunity deals involve the sale of vending machines, pay telephones, amusement devices, greeting card display racks and 900 telephone lines. Maryland's Business Opportunity Act requires that sellers must file a disclosure statement with the Securities Division before advertising or soliciting in Maryland. The seller also must provide a copy of the disclosure statement to the buyer at least 10 business days before an agreement is executed.
- To find out if a business opportunity is registered in Maryland, or to report a potential violation of the Business Opportunity Act, contact the Division at (410) 576-7042.
