Here are parameters posted by the FTC
(Federal Trade Commission):
"Multilevel marketing plans, also known as
"network" or "matrix" marketing, are a way of selling
goods or services through distributors. These plans typically promise that if
you sign up as a distributor, you will receive commissions -- for both your
sales of the plan's goods or services and those of other people you recruit to
join the distributors. Multilevel marketing plans usually promise to pay
commissions through two or more levels of recruits, known as the distributor's
"downline."
If a plan offers to pay commissions for
recruiting new distributors, watch out! Most states outlaw this practice,
which is known as "pyramiding." State laws against pyramiding say
that a multilevel marketing plan should only pay commissions for retail sales
of goods or services, not for recruiting new distributors.
Why is pyramiding prohibited? Because plans
that pay commissions for recruiting new distributors inevitably collapse when
no new distributors can be recruited. And when a plan collapses, most people
-- except perhaps those at the very top of the pyramid -- lose their
money."
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