Many MLM companies fit the legal definition of a Pyramid scheme (and have faced consequences from the FTC in some cases).

The general rule is that if the majority of money does not come from selling to retail customers (either directly or downstream), but rather from recruiting new members, then it's a pyramid scheme.

There really is no "general rule" as evidenced by the fact that companies accused of being MLMs have gone on as publicly traded companies for ages, while even billionaires and hedge fund managers have feuded about whether it is a scam.

See: Herbalife and Ackman vs. Icahn.

Or AFLAC. (I'm not saying they are an MLM, but I've been personally approached for a "job" that seemed to be sales with no qualifications needed and I wondered)

My general rule is paraphrased from the FTC website[1]

There's more detailed information on a different page[2] including the following quote which I think supports the general rule I listed in my original comment:

> ...[Amway's] sales plan was not an illegal pyramid scheme. Amway differed in several ways from pyramid schemes that the Commission had challenged. It did not charge an up-front "head hunting" or large investment fee from new recruits, nor did it promote "inventory loading" by requiring distributors to buy large volumes of nonreturnable inventory. Instead, Amway only required distributors to buy a relatively inexpensive sales kit. Moreover, Amway had three different policies to encourage distributors to actually sell the company's soaps, cleaners, and household products to real end users. First, Amway required distributors to buy back any unused and marketable products from their recruits upon request. Second, Amway required each distributor to sell at wholesale or retail at least 70 percent of its purchased inventory each month -- a policy known as the 70% rule. Finally, Amway required each sponsoring distributor to make at least one retail sale to each of 10 different customers each month, known as the 10 customer rule.

Lastly, just because people disagree about the nuances of the rule, does not mean the rule doesn't exist. I feel very comfortable with my original statement, and those in favor of e.g. Herbalife would vigorously argue that meet my definition of MLM, while those who think its a scam would argue that they don't meet it.

1: https://www.consumer.ftc.gov/articles/multi-level-marketing-...

2: https://www.ftc.gov/public-statements/1998/05/pyramid-scheme...

Herbalife was fined $200 million by the FTC a few years ago.

Bill Ackman declared: 'Herbalife has actually been shut down by the FTC, they just haven't realized it yet'

But Herbalife management, and Carl Icahn, said that the FTC had determined it was not a pyramid scheme despite the $200M fine.

The chair of the FTC denied that they determined it was not a pyramid scheme - but at the same time, they carefully didn't say it was.

I'm just saying you can't really treat the FTC as the ultimate authority, because even they don't know.

> You're talking about multi-level marketing. Which isn't quite a pyramid scheme

Aunt Meg, is that you? I told you to stop it with the essential oils already.

She’s this close to getting her Lexus*

* (A lease in your name on Lexus that they will cover the payments on so long as you keep consistently bring in a statistically unlikely amount of product every month for the entire 72 months you were signed up for)

MLM is about concealing your status as a pyramid scheme from investigators, in the hope that either their resources are too limited to chase you or that by the time they do you've cashed out anyway.

On a forum I used many years ago a regular was forever pushing an MLM and I investigated how it worked, just to try to understand how screwed he was rather than out of any misunderstanding that MLMs are a good idea.

It was one of those health juice MLMs, and what I realised was very clever was that the business structure was set up so as to on the one hand make it less obviously an MLM, and then on the other hand ensure the scammers were insulated from the scam.

There's a pretty ordinary over-complicated compensation package, with tiers of distributors getting a percentage from those beneath them in a structure that sure looks like a pyramid - and imaginary "consumers" who buy at the supposed retail prices at the bottom of the pyramid. But the juice itself is bought exclusively from a separate company at an inflated price.

If the government shuts down the MLM company, few there were getting rich, it's just a handful of people out of an office somewhere. The big money flows into the juice manufacturer selling this awful tasting muck - and they can claim they know nothing about any pyramid scheme. Selling cheap juice for lots of money isn't a crime it's just capitalism.

You are correct, good sir. As you point out, both are somewhat the same: your value increases as more people buy into the illusion of value.