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While there are some legitimate multi-level marketing schemes (often involving home products, vitamins and the like) others are simply a more sophisticated version of the chain letter.
Legitimate multi-level marketing primarily focuses on the sale of products or services, with the recruiting of sub-dealers being an option for growing distributors. The others, however, operate as a pyramid directing the focus on signing up more sub-dealers rather than actually pushing the products or services.
In a manner similar to the Ponzi scam, these operations depend on continuously adding distributors to the pyramid. Each of these people plans to devote their time to recruiting more people, rather than selling the products. The bottom line is often that the only products sold are those sold to the folks who make up the pyramid.
Questionable multi-level marketing schemes are usually easy to identify and are typified by high pressure recruiting methods (often scripted) and by the emphasis on unrealistic profits derived, not by the sales of products or services, but by recruiting others into the system.
It is easy to see how an unemployed laborer with limited education might fall for these high-pressure recruiting techniques, which lead him to hopefully believe that overnight he or she will become a wealthy executive receiving a upper-class income provided by an army of newly recruited dealers and sub-dealers and underlings selling the products or services. Regrettably, this just doesn't happen.
Fraudulent pyramid schemes typically violate the Postal Lottery Statute (Title 18, United States Code, Section 1302). They contain all three elements of a lottery: prize (expectation of monetary or other gain from participation in the pyramid); chance (the monetary return the participant may receive from participating is entirely up to chance--dependent on the efforts of those recruited lower in the pyramid), and consideration (the fee the participant pays to become a distributor--which is often quite high).
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