LC-29 · Corporate
Multilevel marketing above the pyramid line
Recruitment that stays just retail
In ordinary words
Companies can pay commissions up many levels of recruiters, as long as the operation is built on real retail sales rather than on paying people mainly for recruiting.
Why people call it a crime
The living-room pitch looks like a pyramid scheme. The FTC test is colder: who actually buys the product, and why.
A scene, not a hypothetical statute
The chart has five levels. The starter kit costs $199. Almost everyone who joins loses money after parties and gas. If retail customers outside the network are buying, the structure can still be lawful.
In legal terms
Pyramid schemes are unfair practices under FTC v. Koscot (1975): payment for the right to recruit, with rewards unrelated to sale of product to ultimate users. In In re Amway Corp. (1979) the Commission allowed a multilevel plan with retail rules and buyback protections. The FTC’s Herbalife settlement (2016) required retail-sales verification without labeling the whole model illegal. Most participants lose money; that fact alone is not the test.
Direct selling with a real product and retail customers is lawful commerce. The illegality trigger is compensation tied to recruitment rather than to sales.
15 U.S.C. § 45; FTC v. Koscot Interplanetary, 86 F.T.C. 1106 (1975); In re Amway, 93 F.T.C. 618 (1979).
Where it stops being legal
Inventory loading, bonuses paid for recruitment alone, and income claims that are false convert the model into a deceptive scheme. That is when the FTC and state AGs file.