Mod 14 Case Analysis

Read the following topical background:

A "Pyramid Scheme" is defined as a dishonest and often illegal way of selling investments, whereby money from later investors is used to pay people in the system who have already invested. An example of a pyramid scheme would be where a participant (i.e. distributor, vendor, etc)pays an "entry fee" in order to be able to receive compensation for signing new persons up for the scheme, as well as receive compensation for when those new persons introduce their own new participants to the scheme.

It is likely that if you live, or have lived, in Utah you are very familiar with various Multi-Level Marketing (MLM) companies. Utah has more MLM companies per capita than any other state. From dietary supplements, to beauty products, to financial advising, there are an almost unlimited variety of MLM opportunities available. The average income of those who join MLMs however, is very low. According to the Federal Trade Commission less the 1% of all people who join an MLM ever make any profit, the vast majority spend more money getting enrolled in the MLM than they ever make back. In terms of a real opportunity to make money, the Federal Trade Commission's published findingsstate(Links to an external site.)

, "MLM makes even gambling seem like a safe bet in comparison."

Read the following document put out by the Securities and Exchange Commission advising investors how to differentiate between an illegal pyramid scheme and a legal MLM. Once you have finished reviewing the document find a currently operating MLM (in Utah or elsewhere) and analyze it to determine if it complies with all applicable rules to be a legal business operation.

Hint: use the "Hallmarks of a pyramid scheme" from the document link below as the rule for your IRAC.

Link Beware of Pyramid Schemes Posing as Multi-Level Marketing Programs