How to Protect Yourself From an Illegitimate Scheme
September 2nd, 2007 Filed under: Uncategorized — Small Home Business AuthorThousands of people have lost substantial amounts of money by participating in illegitimate schemes. An example of an illegitimate scheme would be what most regulators would define as a pyramid scheme. The purpose of this article is to help you avoid falling victim to a scheme which can be disguised as a legitimate business. Pyramid schemes hide their true nature in order to evade state and federal regulators. There are a few points you should be made aware of and some due diligence questions you need to ask before choosing a company.
Illegitimate schemes are illegal. The participants and these types of companies are deemed as fraudulent operations. There are certain risks that these types of schemes will be closed down due to non compliance with regulations and authorities. Questioning of company operations, policies and procedures, compliance guidelines, etc. are usually discouraged when dealing with a scheme. This may be hard to recognize if participants are not considering the consequences of not asking the right questions.
According to the Network Marketing Business Journal, June 2007, D. Jack Smith, a specialist in multi-level marketing law and graduate of Harvard Law School indicated that some pyramid promoters try to make their schemes look like multilevel marketing methods. Multilevel marketing and direct selling are legitimate business methods which use a network of independent distributors to sell consumer products. He also added that there should be careful preparation of marketing plans and supervision of distributor practices and scrupulous honesty applied at all levels.
As opposed to pyramid schemes which often choose products which are cheap to produce but which have no established market value, such as new miracle potions, exotic cures, etc. a direct selling company has a strong distributor base which sells consumer products supplied by an established company. The best way to avoid a disguised pyramid fraud is to know what to look for in a legitimate income opportunity. The following are some important questions to ask to help tell the difference between a legitimate company and an illegitimate scheme.
What is the start up cost to join? There should not be unreasonable start up costs to join a company. Most direct selling and multilevel companies keep their start up fees generally small. The start up fee usually includes the distribution of a start up sales kit. Direct selling companies want to make it easy for you to start selling so they keep the costs low. Another question to ask is: Is there an inventory policy? Does the company buy back unused inventory? If the company does not have a policy, you could be stuck with unsold inventory that you are not able to sell. Also, inventory purchases should never be more than you can realistically expect to sell. How many years has the company been in business? Look for a legitimate company that has a track record, not something that was just created overnight. Other viable questions to ask would be about consumer feedback and consumer sales. The product should be viable and there should be a competitive market for the products. Direct selling companies depend on selling to consumers and establishing a market.
One should also be aware of false marketing and false information on the internet. Many blogging sites are used by non legitimate companies to make themselves look legal in addition to using them to discredit other legitimate direct selling companies. Any and all opinions on blogs are just that, opinions, and should not be taken or viewed as factual information.
Before you sign up with a company, investigate carefully. You should consult with others who have had experience with the company first hand and know and use the products. Also, the company should be forthright in answering all distributor questions. If the company evades issues of concern, this could be a red flag. The company should have a compliance department, policies and procedures in place, in addition to outside council on direct selling matters. Make sure to verify all information. Do not assume that everything you hear is complete. Remember to take your time when doing your due diligence to protect yourself and your new business venture.
