By definition, MLM is just a hair away from being a pyramid scheme (go look up FTC vs. Koscot and FTC vs. Amway), yet when most MLMers talk, they do NOT know the difference between pyramid scheme vs. MLM, or they can only quote Wikipedia or some other network marketer's abbreviated version, with out understanding the actual differences.
Here's one example, from a "David Cant", who claims to be Internet marketer out of Australia. On his "About Pyramids and Ponzis" webpage, he wrote:
In both definition of Ponzi scheme and Pyramid scheme, he merely copied Wikipedia, without any understanding of the why, or even cite any laws. He doesn't know the difference between pyramid-shaped organization vs. pyramid scheme.
He is supposedly trying to demonstrate his knowledge. He is instead showing off his ignorance, and revel in it. He doesn't want to know what the law actually says. Apparently, it's not relevant.
Australia has specific laws prohibiting "pyramid selling" in "Trade Practices Act (1974)", specifically section 65AAA through 65AAE.
http://www.comlaw.gov.au/Details/C2010C00623/Html/Volume_1#param397
65AAD What is a pyramid selling scheme?
(1) In this Act:
pyramid selling scheme means a scheme with both the following characteristics:
(a) to take part in the scheme, some or all new participants must make a payment (a participation payment) to another participant or participants in the scheme;
(b) the participation payments are entirely or substantially induced by the prospect held out to new participants that they will be entitled to a payment (a recruitment payment) in relation to the introduction to the scheme of further new participants.
(2) A scheme may be a pyramid selling scheme:
(a) no matter who holds out to new participants the prospect of entitlement to recruitment payments; and
(b) no matter who is to make recruitment payments to new participants; and
(c) no matter who is to make introductions to the scheme of further new participants.
(3) A scheme may be a pyramid selling scheme even if it has any or all of the following characteristics:
(a) the participation payments may (or must) be made after the new participants begin to take part in the scheme;
(b) making a participation payment is not the only requirement for taking part in the scheme;
(c) the holding out of the prospect of entitlement to recruitment payments does not give any new participant a legally enforceable right;
(d) arrangements for the scheme are not recorded in writing (whether entirely or partly);
(e) the scheme involves the marketing of goods or services (or both).
65AAE Marketing schemes—are they pyramid selling schemes?
(1) To decide whether a scheme that involves the marketing of goods or services (or both) is a pyramid selling scheme, a court may have regard to the following matters in working out whether participation payments under the scheme are entirely or substantially induced by the prospect held out to new participants of entitlement to recruitment payments:
(a) the extent to which the participation payments bear a reasonable relationship to the value of the goods or services that participants are entitled to be supplied under the scheme (as assessed, if appropriate, by reference to the price of comparable goods or services available elsewhere);
(b) the emphasis given in the promotion of the scheme to the entitlement of participants to the supply of goods and services by comparison with the emphasis given to their entitlement to recruitment payments.
(2) Subsection (1) does not limit the matters to which the court may have regard in working out whether participation payments are entirely or substantially induced by the prospect held out to new participants of entitlement to recruitment payments.
This definition of pyramid scheme / pyramid selling can be roughly summarized as
(1) A scheme, plan or program;
(2) For which a participant paid money (or something of value) to join;
(3) For the right or chance to get paid with money (or something of value)
(4) Which is contingent upon the introduction of additional participants into the scheme, plan or program (see 1) who also paid to join (see 2).
This is the SAME definition used in the US, and most Western nations. Indeed, this was the summary (slightly reworded) given by Grimes and Reese LLC, one of the better known MLM lawfirms in the US.
Mr. Cant, through his badly written webpage, has demonstrated his fundamental lack of MLM understanding, by claiming pyramid-shape is the same as pyramid scheme. This is an often used red herring by bad network marketers to distract, essentially claiming that "pyramid schemes are all around us, thus there is no cause for alarm". This completely ignores the actual laws on the books, both in Australia, and the US, and all over the world, that specifically outlaws pyramid schemes and Ponzi schemes (while other laws and rulings allow network marketing). This is further confirmed by him failing to cite his local laws (easily found online), but instead, merely copied Wikipedia definition without real understanding.
Thus, we can conclude that Mr. Cant has NO understanding of what a pyramid scheme really is, and his opinion cannot be trusted.
And frankly, most MLMers do NOT know what a pyramid scheme is. This is a widespread problem, not limited to a few network marketers. And this HURTS network marketing in the long run. After all, how can you operate legally if you don't even know what's legal (and what's not)?
P.S. For those of you in the USA, here's a list of MLM laws of all 50 states, compiled by TheMLMAttorney.com Kevin Thompson:
http://www.scribd.com/doc/21293376/MLM-and-Pyramid-Laws-in-50-States
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