MLM Schemes: How to Check a Specific Company

Most people searching for current MLM schemes want a list of companies to avoid.

We are not going to publish one, and the reason is not caution. A list like that would be unsourced, out of date within months, and unfair in both directions — we would be making claims about named companies we cannot substantiate, while omitting others. Lists of this kind are generally assembled from other lists rather than from primary sources, which is how a company that closed years ago stays on them indefinitely.

What does not decay is a method. This one takes about an hour on any specific company, including one launched last week.

This article describes how regulators and courts have generally framed these questions. It is not legal advice. If you are considering a significant commitment, or you believe you have been harmed, speak to a qualified lawyer in your jurisdiction.

First, the word

“Scheme” is not automatically pejorative. In British and South African usage it means an arrangement or a programme — a pension scheme, a bursary scheme. So “multilevel marketing scheme” is often a neutral description.

A pyramid scheme is something specific and unlawful: an arrangement where participants are compensated primarily for recruiting other participants rather than for selling to people outside the arrangement.

The distinction is not about the shape of the organisation. A lawful direct selling company also has a pyramid-shaped org chart, and so does a bank. It is about where the money comes from. MLM versus pyramid scheme covers the test in full.

The one question that does most of the work

What proportion of company revenue comes from sales to people who are not participants, and what is the basis of that figure?

Ask it directly. Then note which of three things happens:

• A number with a basis. The company classifies orders at the point of sale — retail customer, preferred customer, distributor purchase — which means it holds the record a regulator would ask for. That is a substantive signal about the operation, separate from whether the number itself is high.
• A number with no basis. “Most of it.” An estimate produced for the conversation.
• Deflection. “We don’t break that out.” Sometimes true of a private company’s financials, but the classification either exists or it does not, and the answer to do you track it is not confidential.

Everything else — plan shape, product story, rank names, event footage, income screenshots — sits downstream of that number.

The public sources

These are primary and they are free. Named here because the point of this article is that you can check a company yourself rather than trust a list.

United States

• The company’s own income disclosure statement. Publishing one is a meaningful signal; the contents are more meaningful still. Read the median, not the top rank, and check whether everyone who held a position is included or only the “active”.
• Federal Trade Commission enforcement actions and press releases. Published, searchable, and the most substantive source about a company that has been the subject of one.
• State attorney general announcements. Some of the most significant actions in this industry have been at state level.
• The Direct Selling Association member directory. Membership is a signal, not a certification — it indicates a company has agreed to a code, not that it complies. Absence is also not proof of anything.
• SEC filings, if the company or its parent is publicly traded. Audited revenue, segment detail and risk disclosures that no marketing page will contain. This is the single richest source when it exists.
• Court records. Judgments are public. A search of the company name in court records tells you more than any review site.

South Africa

• The Direct Selling Association of South Africa’s directory, with the same caveat about what membership means.
• The National Consumer Commission, for consumer protection matters.
• CIPC records, for whether the entity is registered and who its directors are.
• Judgments, again — searchable and substantive.

Is MLM legal in the USA and is MLM legal in South Africa cover the frameworks these bodies operate under.

What to read in the income disclosure

If the company publishes one, four things:

1. The denominator. Does it include everyone who held a position in the period, or only those the company defines as active? Excluding the inactive removes most of the people who earned nothing, which moves every average dramatically.
2. Median, not mean. A mean in this industry is dominated by a very small number of very large earners.
3. Gross or net. Gross earnings before the participant’s own product purchases, event costs and marketing spend is a different figure from what anybody took home.
4. The proportion earning nothing. Usually available by subtraction if not stated, and usually the most informative line in the document.

Six warning signs that are about structure, not vibe

These are structural, checkable and do not require you to judge anybody’s sincerity:

On “what is the newest MLM company”

Newness tells you almost nothing useful, and it removes the two things that would help: a track record and an income disclosure with any history behind it.

A company in its first year cannot show you what happens to its plan when recruitment slows, because that has not happened yet. If you are evaluating something new, the questions shift to the people and the structure: who is behind it, what have they done before, is the plan document versioned and complete, and does the compensation depend on recruitment or on sales. The last one is answerable from the plan document alone.

If you have already joined something

Two practical steps, neither of which requires a decision about whether to stay:

Get your own numbers. Total spent, including product bought for yourself and for qualification, plus event and marketing costs. Total received. Most people have never subtracted one from the other, and the answer is data about the plan rather than about you.

Check the refund terms on unsold stock, and the window on them. If you hold inventory you did not need, that window is the only thing that matters this month.

Why pyramid schemes fail explains the arithmetic that makes collapse structural rather than accidental, and is MLM profitable covers what the published disclosures actually show across the industry.