It may seem like everyone these days is involved in some sort of direct sales company, also known as multi-level marketing. While this may not be so bad, often, the companies that make these products encourage and incentivize their independent consultants to recruit others to sell the products. While being asked by an acquaintance to “join their team” with “unlimited earning potential” may be annoying to some and too good to be true to others, it is important to note that doing so is not necessarily illegal. That is because there is a big difference between lawful MLMs and illegal pyramid schemes.
Many people Maryland are familiar with MLMs. In this business model, goods are sold by independent consultants who represent the business. There is no physical store in multi-level marketing businesses — their products are sold directly by the consultants, often through parties. However, consultants are also incentivized to sign up more individuals to be consultants too, thus earning a percentage of what those in their downline earn.
Unlike an MLM where consultants earn money from selling products, unlawful pyramid schemes put very little focus on selling products. Instead, their primary focus is to recruit more consultants. The start-up costs for these companies are significant and the companies make unrealistic promises of financial success. In pyramid schemes, the company sees profits from getting others to expand their downline, with little to no product sales whatsoever, meaning consultants do not see any financial return on their investment.
So, those who are involved in MLMs can rest assured that they are not breaking the law. Pyramid schemes are a type of white-collar crime, and those accused of running them can face significant fines or even jail time. Financial crimes such as these will not go unnoticed by prosecutors, so those who are facing charges related to pyramid schemes will want to ensure they have the guidance needed to develop a solid criminal defense strategy.