Watch Your Step

The most insidious of the MLM look-alike scams are pyramid schemes. They mimic legitimate network operations in that they compensate distributors on a multilevel structure, providing an incentive to sell the business opportunity to prospects. The key dis-tinction, however, is that pyramids focus primarily on recruiting salespeople, not on selling products or services. In fact, in many cases, there's no real product or service to sell.

"In a pyramid scheme, the focus isn't on the movement of a product or service to the general public," explains Jeffrey Babener, a partner in the Portland, Oregon, law firm Babener & Associates who represents many network marketing com-panies in the United States and abroad. "It's a 'deal on wheels,' in which people are encouraged to spend a lot of money and find other people to do the same, who are then also encouraged to find others to do the same. The whole focus is on the movement of money-people making money from headhunting fees."

How can you pick out a scam? Do a background check on the company you're considering. Contact your local Better Business Bureau (or log on to the bureau's Web site at http://www.bbb.org) for a reliability report on the company. You can also consult the Multilevel Marketing Inter-national Association (MLMIA) at (949)854-0484 or http://www.mlmia.com , or the Direct Selling Association at (202)293-5760 or http://www.dsa.org , to see if the company is a member in good standing. The Federal Trade Commission (FTC) will have infor-mation on any complaints that have been lodged about the company; contact the FTC at (202)326-2222 or http://www.ftc.gov