Don't Fall for Pyramid Schemes, Attorney General Advises

March 22, 2000

In his monthly publication The Consumer's Edge, Attorney General J. Joseph Curran, Jr. advises Marylanders to beware of pyramid schemes that masquerade as multi-level marketing programs. Instead of finding "financial freedom" or wealth, many people lose more money investing in these programs than they are able to recoup.

Multi-level marketing programs often sell products such as cosmetics, vitamins and health products and solicit people to join as salespeople or "distributors." Typically, the distributors not only earn commissions on products they sell, but also get additional money by recruiting new distributors and getting a percentage of those distributors' sales. Some schemes may even pay recruitment bonuses. However, if the program focuses primarily on recruiting new members rather than on sales, it is a pyramid scheme, Curran says.

"With a pyramid scheme, sales of the product or service are really incidental - the real money comes from what new members pay to join or have to buy in inventory," Curran said. "The scheme inevitably collapses when the pool of potential recruits dries up, and when it does, most people, except those at the top of the pyramid, lose their money."

Curran says anyone considering joining a multi-level marketing program should:

Consumers can get information about Maryland law and multi-level marketing, or report a suspected pyramid scheme, by calling the Maryland Securities Division at (410) 576-7042.

Curran's office distributes The Consumer's Edge through more than 800 businesses, agencies, schools, and community associations. Groups interested in receiving a monthly issue should call 410-576-6956.

Media inquiries: Sean Caine (410) 576-6357