MLM scam: the signals that tell you to run

Digging foundations teaches you one thing: before you stick the spade in, find out what is underground.

If you don’t, you hit a pipe. And then you don’t have a terrace, you have a stream.

It’s the same with companies. An enthusiastic presentation is only the surface. What matters is what lies beneath it.

And I keep hearing the word “scam” about network marketing. Sometimes rightly, sometimes not. So let’s look at how you can recognise an MLM scam before you dig in.

How do I recognise an MLM scam?

You recognise an MLM scam by the company earning mainly from entry payments and the recruiting of new people, while the real products are only a front. Legal network marketing stands on selling goods to customers.

The EU rules put it clearly. Under the Unfair Commercial Practices Directive 2005/29/EC (Annex I), it is prohibited in all circumstances to run or promote a system in which the reward comes mainly from bringing in other people, and not from selling or consuming products. Every EU country has transposed this into its own law.

I put it simply: underground there must be goods, not just people.

But a scam doesn’t ask about the law. It often looks completely normal. So look at the signals, not at the smiles.

What are the warning signs of an MLM scam?

There are several warning signs and one of them alone doesn’t have to mean a scam. But when you meet several at once, slow down, or leave straight away.

Warning signs of an MLM scam and what to do about them

Signal	Why it is a problem	What to do
An expensive compulsory starter package	The company earns from you straight away, not from customers.	Ask whether you can start without the package. If not, slow down.
Promises of earnings and “certainty”	An honest person can’t promise results.	Ask to see in writing what the company really promises.
Reward mainly for recruiting	That is how a prohibited pyramid scheme works.	Ask exactly what the reward is calculated from.
Pressure to decide quickly	Whoever pushes doesn’t want you to think.	Say you will think about it. An honest offer doesn’t mind.
Unclear or secret rules	You don’t know what anyone is paying you for.	Ask for the compensation plan and the contract in advance.
Products nobody buys outside the system	No customers anywhere, only members.	Ask who will buy them if you stop recruiting.
They forbid you to doubt	A healthy company can take questions.	Notice how people react to “why”.

You will find a complete checklist of questions to ask before you join in the article How to choose an MLM company. Here I stick to what is suspicious.

What is the “airplane game” and why is it a pyramid?

The airplane game is a gifting game in which you pay for a seat in the “airplane” and those higher up are paid out of the deposits of new people. It is a classic pyramid principle without any product.

It sounds like an offer from a friend: “Put it in once and then just watch.” I understand. It is tempting.

But such a system needs more and more new people all the time. And there are never infinitely many of them. The last ones to join have nobody to pass it on to.

The telltale sign is simple: nobody there sells any goods and nobody buys them. The money just moves around.

Is MLM always a scam?

MLM is not automatically a scam. Network marketing is a legal way of selling if the company sells real products and the rewards come from their sales. Specific companies and specific practices are fraudulent, not the whole field.

But I honestly say the other half too. The reputation of the field is battered, and not entirely unjustly. And results are never guaranteed, even with a decent company.

That is why I don’t ask “is MLM a scam?” but “is this specific company a scam?”. You will find the basic explanation in the main article What is MLM.

What should I do if I’m already inside and have doubts?

If you are already inside and something doesn’t add up, stop putting in more money, keep all your documents and find out what you are entitled to. Don’t pay for further purchases out of fear of losing what you have.

1. Stop further deposits. No new packages, no “just this last one”.
2. Keep everything. The contract, orders, invoices, messages, screenshots of promises.
3. Read the contract. Find out how it can be ended, what happens with unused goods and what the deadlines are.
4. Consider withdrawing. If you buy as a consumer, for contracts concluded at a distance or away from business premises you generally have the right to withdraw within 14 days under Directive 2011/83/EU. As a distributor, though, you often act as a trader, and then this protection may not apply to you. What counts is the contract. The exact start of the period and any exceptions are worth checking with a consumer advice service.
5. Don’t stay silent. Ask another person, not only the one who brought you into the company.
6. Don’t blame yourself. A scam is built on trust. Someone who trusted is not a fool.

Where do I turn if someone has deceived me?

Where to turn depends on the kind of problem: for supervision of unfair practices there is your national consumer authority, for a suspected crime the police, and for companies from another EU country the European Consumer Centre.

• The national consumer authority. It supervises compliance with consumer protection law and can impose a fine. It generally won’t resolve a dispute about a refund for you or cancel your contract.
• The police or the public prosecutor. Fraud is a crime in every EU country, so if you suspect fraud, you can file a criminal complaint in your country.
• The European Consumer Centres Network (ECC-Net). It advises consumers on cross-border disputes with companies based in another EU country (and in Norway and Iceland).

Asking how to proceed is nothing to be ashamed of. Quite the opposite. Your experience can stop other people before they get involved.

Frequently asked questions

Is MLM a scam?

MLM itself is not a scam. Network marketing is a legal way of selling in the EU if the rewards are paid mainly for selling real products. Companies that behave like a pyramid and earn mainly from newcomers are fraudulent. So it depends on the specific company and its rules.

How do I recognise a pyramid scheme?

You recognise a pyramid scheme by receiving the reward mainly for bringing in more people and not for selling goods. Typical signs are an expensive entry payment, a product on the sidelines and pressure to recruit. The Unfair Commercial Practices Directive expressly prohibits such a system.

What is the airplane game and is it legal?

The airplane game is a gifting game in which those higher up receive the deposits of new arrivals. It works on the principle of a pyramid without a real product, so it is risky and almost always a loss for newcomers. Before you put anything into a similar game, ask a consumer advice service or a lawyer.

Can I withdraw from an MLM company and get my payment back?

Sometimes yes, it depends on the contract and on your role. If you buy as a customer (consumer), for contracts concluded at a distance or away from business premises you generally have 14 days to withdraw under Directive 2011/83/EU. As a distributor you often act as a trader, and then this period may not apply to you. The contract decides, for example its terms for buying back products. Check the exact procedure with a consumer advice service, your national consumer authority or a lawyer, and always withdraw in writing.

Where do I report a suspected MLM scam?

You can report a suspected unfair practice to your national consumer authority. If you suspect a crime, file a criminal complaint with the police or the public prosecutor. For a company from another EU country, the European Consumer Centre will advise you. Keep your documents for every submission.

What should I hold on to when I hear “it’s a sure thing”?

One sentence is enough: an honest company guarantees you nothing and doesn’t rush you anywhere.

I’m building a new network myself and looking for leaders. That is exactly why I say openly what is wrong in the field. The more decent people talk about it, the less room the others have.

Foundations can only be dug where you know what is underground. If you want to see how I go about it, arrange a private presentation. Without pressure, and questions are welcome.

Sources

• Directive 2005/29/EC concerning unfair business-to-consumer commercial practices (Annex I)
• Directive 2011/83/EU on consumer rights (right of withdrawal, Article 9)
• European Commission: European Consumer Centres Network (ECC-Net)

Tom