Real and fake multilevel network marketers

Q. Mark David of Mandaluyong writes: "My friend is recruiting me to join this company. He says it’s a good way to earn big money–and fast. But I have to invest a few thousands first. Is this pyramiding? I sure need the money but I don’t want to do anything illegal.

A.You did not include specific details in your letter. To determine whether or not a company is into pyramiding, the Department of Trade and Industry or the Securities and Exchange Commission must first conduct a thorough investigation. Some companies are actually legitimate multilevel network marketers while others only masquerade as such.

There are several questions you may ask yourself to determine, or least to suspect, the legitimacy of the company’s sales scheme. First, where will the big and fast compensation come from? MLMs require members to sell products in order to gain compensation. In pyramiding, members earn money from recruiting more members.

Both schemes encourage members to recruit more members. These new members are called downlines. In MLMs, the commissions of members is derived from the sales output of the downlines, never from their recruitment or joining fees. This is not the case with pyramiding.

Second, is there a product to be sold? Usually, pyramiding companies do not require the sale of products. However, those posing as legitimate MLMs also have products up for sale. The difference with real MLMs is that members in a pyramiding scheme are encouraged to recruit rather than to sell. During their presentations or seminars, they tell would-be members that income from sales is slow while inviting more people to join will allow the members to earn as much as P1 million a month.

If you doubt the company’s legitimacy, contact the Bureau of Trade Regulation and Consumer Protection and ask for information regarding the said company. There are a number of "MLM" companies being investigated by the DTI because they are suspected to be involved in pyramiding.

The DTI is working together with the Securities and Exchange Commission for more sweeping investigations of pyramiding companies. The DTI is also set to sign a memorandum of agreement with the Direct Selling Association of the Philippines to conduct a joint information and education campaign for direct sellers and for the general public.

(You may call the Department of Trade and Industry hotline number 8977-DTI for complaints and free consultations on consumer welfare issues. You may also text DTI<space> comment and sent to 2920 or e-mail us at [email protected]. Log on to www.I-reklamo..ph.or www.dti.gov.ph.)