It's not a Pyramid Scheme, Pyramid Schemes are Illegal!
Unpacking the Most Overused Response to a Very Valid Objection
Recently, I was a guest on anti-MLM creator Always Marco’s channel to discuss my experience over ten years with a wellness MLM. During the conversation, I told Marco that there was this tiny voice in the back of my head that was telling me that what I was doing was illegal—but that I overrode that voice with self-doubt and trust for my uplines. Those above me, my mentors, were highly credentialed people. Certainly, they wouldn’t risk their reputations by involving themselves in something illegal!
Except, they did, they were, and to the best of my knowledge, they still are.
A common rebuttal to the objection, “isn’t this a pyramid scheme?” is the old trope, “Pyramid schemes are illegal.” As if that stops all discussion. Except that governments attempt to address (or at least pretend to attempt to address) schemes by laying it all out for us online. Canada’s Competition Bureau states, “The scammers lure people by promising big financial returns for little cost. People are often persuaded to join by family members or friends, who may not even know that what they are doing is illegal.” They define a pyramid scheme through adding in the following points which constitute illegal pyramid selling:
It is illegal for a multi-level marketing plan to do any of the following:
represent compensation unless it is fair, reasonable and timely
offer compensation for recruitment
require purchases (other than a start-up kit sold at cost) as a condition of participation
require participants to buy a large amount of inventory that cannot be resold or used within a reasonable amount of time (inventory loading)
fail to offer a buy-back guarantee on reasonable commercial terms
These types of activities would be considered pyramid selling under section 55.1 of the Competition Act.
But let’s take a look at each point and see, does ANY multilevel marketing company follow any of the rules?
Compensation Claims: MLM wouldn’t be MLM if you didn’t see highlight reels on Instagram appealing to “What if?!” If the Hero’s Journey of the top 0.5% were not making up the bulk of what you heard on the constant team calls, events, trainings and conferences—why would anyone have any reason to believe they had a real chance at financial freedom? Let’s not forget the various Voxer chats you need to be “plugged-in” to where overly emotional leaders evangelize to you on the hour. An asterisk stating *results not typical in 6-point font on a website does not cover up for the tactic of Denominator Neglect, where companies fail to recognize the 99% who lose in these schemes. A BossBabe sliding in a mention of earnings.arbonne.com does not eradicate hours upon hours of crafting pseudo self-help content to attract recruits as they project an image combining the archetypes of guru, therapist, “It girl,” Mommy, and coach, designed to draw you into their downline with the promise of becoming your best-self-operating-at-your-highest-frequency. Also. Why would the company I worked for name the URL of the place we are to go to obtain all business resources, “The Freedom Revolution dot Com.” It is crafted to evoke strong, positive emotions and ideals, implying that the MLM offers financial and personal freedom. The word “revolution” implies that this is a groundbreaking, transformative… as if they are joining something innovative and impactful. These tools of manipulation are not fair, reasonable, or timely whatsoever.
Compensating for Recruitment: I see this skirted as paying reps a portion of the commission of the sales of the people they recruit. For example, as a “leader” in the company I worked for, a new person would get paid no commision on the products they sold until they reached their first promotion. I would. I would earn 20% commission on the products they sold. If and when they got promoted, my downline would have then earned 5% commission on any products they sold. I would get 15% commission on those products they sold. Yes, 10% more then them. If they ranked up. Considering that one quickly runs out of people to sell to, as we simply do not know an infinite amount of people in the market for overpriced supplements—it incentives us to focus our energy on recruiting. For if we do, we open ourselves up to more people. If you say that your company offers an “affiliate” model where you “don’t have to recruit,” I dare you to show me any person who is earning more than they spend using an “affiliate” option. This option is for-show only. So you can say you do it.
Required Purchases: In order to participate in the scheme I was part of, to start your business you needed to commit to paying $856 minimally. In exchange you would receive a box of supplements that aren’t proven to do anything more than eating an apple a day.1 You will get a cheque for $112.50 back the following month but nothing again for four months. If you wanted to get paid any commission for what you were to sell, you have to ensure at least $246 is going to the company every month. If you can do that, you will get $45 back every four months.
Does this sound reasonable or like a good investment?
Would you do it?
No one would. Which is why carefully crafted language and grooming tactics like love-bombing are used heavily in the onboarding process and beyond. Once you jump through various social loops including attending a face to face video chat with a person in a position of power and authority, and once a convincing picture of blissful freedom is painted for you (that’s called “casting vision”), you will watch a training video where a blond woman instructs you that, “If you accumulate 1,200 PV in 30 days or less, you will rank up to your first promotion of Partner Plus! This could look like buying a Quad and Complete shakes for your family, and selling a Duo and Complete to one customer. If you sell 1,200 within your first month you’ll get a $50 reward and immediately rank up to your first promotion, and be able to start earning 5% on all orders! In order to receive commission on any orders, you must be commission qualified, and maintain a personal volume of at least 300 PV.”
The blond woman on the training video does quite a slick job of telling you without telling you, what you must pay and how insignificant the return is.
Lack of Buy-Back policy: I wish I still had the photo I sent to my friend the day I loaded boxes and boxes of unopened supplements and protein powder to the post office to get refunded! It is common for representatives to justify their own product loading, as well as the purchasing of products for friends, family members, and even create client orders under team members as they attempt to stack points under them so they, as their upline, can rank up. Anyone who says that this doesn’t happen on their team… well, I don’t believe you.
Bonnie Patton from Truth in Advertising presenting on misleading income claims at the MLM Conference in Washington, D.C., May 2024.
How is it Legal?
The story told to all of us who went to Capital Hill last Spring (and attended virtually) was that regulators are overworked, underfunded, and there are far too many scams out there to shut them all down. And in the case of multi-level marketing companies, they are often highly connected, extremely resourceful and able to buy their continued existence through exhausting the courts and those who attempt to hold them accountable. They also have the DSA, a faux regulatory board who mainly serves as a PR firm for the “industry” that these scams claim to be. They make a big show of sending letters now and then to some companies and representatives, and they have meetings like this one, where they discuss how to best spin negative press, even naming the names of individual whistleblowers (not creepy at all).
Because regulators aren’t able to or aren’t willing to make MLM illegal, they put the onus on the consumer, saying things like, “You MUST do your research, and you MUST stay away from high-pressure sales tactics, especially at meetings and seminars. What goes up… is almost certainly going to come tumbling down.” They provide definitions like the one I shared from Canada’s Competition Bureau, and expect us, the general public, to compare and contrast our experience to what is definitively illegal as per their definition.
But it’s not just the illegal structure that’s the problem—it’s the highly unethical behaviour.
Take my personal situation, which I now know to be a common one. A famous doctor explicitly directed me to connect with my most vulnerable sales and recruitment prospects to get on a call with him so he could help close the deal for me. In Canada, doctors are held to high ethical standards and must avoid conflicts of interest, like using their authority to promote products or “opportunities” that they benefit from. Provincial regulations and professional codes of conduct, like those from the College of Physicians and Surgeons of Ontario, stress maintaining patient trust and not exploiting one’s position for personal gain. In California, where my uplines were from, doctors must comply with the Medical Practice Act, enforced by the Medical Board of California, which prohibits physicians from engaging in unprofessional conduct, which includes exploiting their position for personal gain. If a doctor in California uses their medical authority to sell MLM products, it is considered unethical and unprofessional. And the cross-border aspect doesn’t serve as any loophole—professional misconduct in one jurisdiction can lead to repercussions in another. That my prospects were not his direct patients doesn’t work in his favour. Using a medical title to promote products is still unethical, as it gives undue credibility to the products, which misled people I know personally into making decisions based on his authority as a renowned medical doctor.
The misbehaviour of MLM leaders goes way beyond this one example. They all involve the issue of coercive control, which is the primary tactic used to make it appear that every person harmed in any commercial cult was a happily willing participant who walked away thinking that rather than being exploited, they had “gotten in their own way. " This mindset leaves them prone to jumping into the arms of the next shiny promise or into another type of cult.
How do these people sleep at night? I do not know for certain, which is why I wrote them an open letter, but I don’t think it is any coincidence that an insular social group is encouraged, that “wearing blinders” is glorified as a virtue, and that faith manipulation (like using scripture to justify behaviour) is commonplace. The playbook is, as I have said multiple times, one that every cult or narcissistic partner uses.
Where do we go from here?
I don’t believe that fraud can be regulated. I think the public needs to be better armed with the knowledge necessary to recognize red flags when a trusted friend invites them to a Zoom call about hormone health. Or to a gathering to learn how to make sourdough. Just as Elphaba discovered that the Wizard of Oz is a manipulative little man who uses deception and exploits fears to maintain his power, all the while presenting an illusion of benevolence and authority—commercial cult leaders present themselves as vehicles for freedom and empowerment. They use persuasive language, testimonials, and success stories to lure individuals into their network. As Elphaba sought to expose the Wizard's true intentions, it's crucial for us to work together to arm the public with knowledge about the tactics used.
If you're looking for support and resources to navigate these challenges, visit Flippingthepyramid.com to connect with others who are on a similar journey. This post is free to view, but all proceeds from pledging your support to this Substack go towards our peer support programming. Together, we can help each other see through the illusions, tell our stories, and make informed choices.
The purpose of this article is to share my personal experience for informational purposes, from my perspective, and not to malign any specific individual or business entity.
P.S. The Compensation Bureau also provided a handy-dandy 2-minute video that was seemingly created in the 90’s (it was uploaded to YouTube in 2015):
YouTube. (2024). Regulators Put the Squeeze on Juice Plus+. Retrieved January 29, 2025, from NutritionFacts.org
Schwarcz, J. (2022, April 29). Let’s Squeeze the Hype Out of Juice Plus. McGill.ca. https://www.mcgill.ca/oss/article/health-and-nutrition-pseudoscience/lets-squeeze-hype-out-juice-plus