expose mlm

MLM or Scam

Illegal Aspects of MLM (Multi-Level Marketing)

Business in Bangladesh

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Acknowledgement

Some of the top experts on MLM’s and pyramid schemes have been consulted in the

preparation of this paper.

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Table of Contains

Name of the Topics Page no.

01.

Report Abstract

03

02.

Introductory Discussion of Relevant Terms

05

03.

Types of MLM compensation plans

09

04.

A simple analysis of a pyramid scheme based binary compensation plan

10

05.

Difference between Legitimate Multi-Level Marketing Plan and Pyramid Scheme

12

06.

How to identify product-based illegal pyramid schemes (illegal MLM)

14

07.

Critical Hypothetical Analysis of Multi-Level Marketing Binary Compensation Plan – An Ultimate Pyramid Scheme

16

08.

Why Pyramid Schemes are Popular?

31

09.

Disadvantages of illegal MLM as A Business Model

32

10.

Destructive Effects on the Lives of MLM Participants

34

11.

A Brief Case study on Destiny-2000 Ltd.

36

12. Government Regulation and Recommendations 39

13.

Conclusion

41

14.

Reference

42

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Report Abstract

One of the most problematical of business models is multi-level or network marketing (MLM).

Many MLM programs show all the effects and characteristics of a pyramid scheme, but the

MLM industry has nonetheless been allowed to continue and flourish in Bangladesh. The

MLM participants are considerably suffered by the tricky and corrupting influence of the

MLM companies, and the financial and social harms. Unfortunately, victims of these programs

seldom complain, blaming themselves for their failures.

This problem is compounded by limited resources available to the enforcement agencies in

Bangladesh, faced with MLM companies which are operating using both Naked Pyramid

Schemes (NPS, where no products are offered actually) and Product-based Pyramid Schemes

(PPS, where products are offered but using illegal pyramid scheme).

Due to inadequate definitions of what constitute a pyramid scheme, insufficient resources,

corruption and lack of prosecutorial wills in enforcement of existing laws, enforcement agencies

often fail to catching the fraud MLM companies, but letting them go free. The consequences are

enormous—millions of consumers are being cheated out of billions of money each year.

A pyramid scheme, as currently defined as are plans which (1) “concentrate on the commissions

you could earn just for recruiting new distributors” and which (2) “generally ignore the

marketing and selling of products and services.”

The above two criteria have proven to be inadequate for determining whether any given MLM

program is a pyramid scheme or not. Legislators, courts, and consumer protection agencies

would serve consumers better if they improved their methods of determining whether an MLM

business fits the definition of a pyramid scheme or not. At least, it is needed to point out that an

MLM program is not a pyramid scheme, when in fact it is more likely a Product-based Pyramid

Schemes that has managed to escape corrective action. However, in Bangladesh some 62

registered Multilevel Marketing (MLMs) companies are now operating in the country and most

of them are following Product-based Pyramid Schemes (PPS).

In this report it has been tried to discuss on the illegal aspects of MLM business, and how to

determine a MLM business as illegal Pyramid Scheme along with discussing the disadvantages

of illegal MLM business. A brief study on the largest MLM Company in Bangladesh, Destiny-

2000 Ltd., has been done here from the legal perspective. This report has recommended for

banning of illegal MLM business in Bangladesh.

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Introductory Discussion of Relevant Terms

As a long-time critic of MLM programs, I was curious to know why so many otherwise

intelligent and capable persons were involved. The growth of MLM amazed me; since it seemed

obvious it was just a disguised pyramid scheme. Yet several persons whom I trusted and

respected tried to recruit me into their downline. They tried to convince me that I may have

misjudged the industry and that MLM may have a real future as a viable and ethical business

model. Finally, I decided to investigate MLM for myself—to prove for myself whether or not my

original objections to MLM were valid.

There are about 62 so-called MLM companies in Bangladesh and most of them are using

Pyramid Scheme in disguise of legitimate MLM business which is illegal. Let’s see the definition

of some relative terms to understand the illegal aspects of MLM business.

Multi-level marketing program (MLM for short, also referred to as ―network marketing), as

defined as—

Any marketing program in which participants pay money to the program promoter in return for

which the participants obtain the right to (1) recruit additional participants, or any other person

into the program participant’s downline, tree, cooperative, income center, or other

similar program grouping; (2) sell goods or services; and (3) receive payment or other

compensations; provided that: (a) the payments received by each program participant are

derived primarily from retail sales of goods or services, and not from recruiting additional

participants nor having additional participants placed into the program participant’s downline,

tree, cooperative, income center, or other similar program grouping, and (b) the marketing

program has instituted and enforces rules to ensure that it is not a plan in which participants

earn profits primarily by the recruiting of additional participants rather than retail sales.

In Multi-level marketing the sales force is compensated not only for sales they personally

generate, but also, secondly, for the sales of others they recruit, creating a downline of

distributors and a hierarchy of multiple levels of compensation.

Pyramid Scheme

As its name indicates, the pyramid scheme is structured like a pyramid. It starts with one person

- the initial recruiter - who is on top, at the apex of the pyramid. This person recruits a second

person, who is required to "invest" $100 which is paid to the initial recruiter. In order to make

his or her money back, the new recruit must recruit more people under him or her, each of

whom will also have to invest $100. If the recruit gets 10 more people to invest, this person will

make $900 with just a $100 investment.

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Fig: Pyramid Scheme

Now if the 10 new people become recruiters and each one is in turn required to enlist an

additional 10 people, resulting in a total of 100 more people. Each of those 100 new recruits is

also obligated to pay $100 to the person who recruited him or her; recruiters get a profit of all

of the money received minus the initial $100 paid to the person who recruited them. The

process continues until the base of the pyramid is no longer strong enough to support the

upper structure (meaning there are no more recruits).

The Fraud

The problem is that the Pyramid Scheme cannot go on forever because there are a finite

number of people who can join the scheme (even if all the people in the world join). People are

deceived into believing that by giving money they will make more money ("with an investment

of just $100, you will receive $900 in return"). But no wealth has been created; no product has

been sold; no investment has been made; and no service has been provided.

In MLM, Pyramid scheme as currently defined as plans which concentrate on the commissions

you could earn just for recruiting new distributors/participants and which generally ignore the

marketing and selling of products and services.

The main characteristic of an illegal Pyramid Scheme is that participants only make money by

recruiting more members, and the results of pyramids are inevitable and obviously predictable.

All Pyramid Schemes eventually collapse and fail. In order for everyone to win under a pyramid

scheme, the recruiting would have to go on forever which is impossible due to saturation of the

market.

Although illegal, pyramid schemes remain popular because the promise of quick, easy money

lures people. The following chart illustrates how difficult it is for those who are not at the top of

the pyramid to expect payment.

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Since many people know pyramids are illegal, so they need to convince other new people that

what they are involved into a pyramid scheme. As a result, pyramid schemes today are being

described in different terms, such as clubs or gifting groups. Pyramid scheme operators attempt

to convince people they are involved in a club to make an investment or to raise money by

making "gifts" to help someone else.

Different kinds of pyramid schemes

The two most basic types are Product-based Pyramid Scheme (PPS) and Naked Pyramid Scheme (NPS).

Naked Pyramid Scheme refers to an obvious pyramid scheme that is easy to detect because no products

are offered, but merely a participation fee or investment. It is a continuous chain of―participants or

―investors‖ is recruited, in which each pays a fee to participate and receives money by recruiting others

into the system.

A product-based pyramid scheme (PPS) is a pyramid scheme that in most respects resembles a naked

pyramid scheme, except that products are purchased by distributors at higher cost. Such product

purchases often combined with other incentives, qualifies distributors for commissions in

ascending levels in the distributor hierarchy.

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A product-based pyramid scheme is the same concept disguised as a legitimate direct sales

opportunity.

Here's how it works:

1. A distributor recruits 10 salespeople who each pay $500 for a starter kit of products to sell.

2. The distributor gets 10 percent of each starter kit that's sold.

3. The distributor also gets 10 percent of each product that any of his recruits sells,

including more starter kits.

4. The recruits are told that the fastest way to make money isn't by selling products, but by

recruiting more people to buy starter kits.

5. The people at the top of the pyramid get commissions from everyone in their downline, the

many levels of recruits below them on the pyramid.

Several MLM programs generate goods or services for just show - not of real value to its

members. These are completed just to tick the authority and eye-wash legal police.

Network marketing—a term devised by the MLM companies to get around the implications

of―multi-level marketing‖—which sounds too much like a chain distribution or pyramid form

of marketing.

Downline—all of the MLM distributors who are recruited under a given distributor and from

whom are generated overrides on product sales.

Upline—the direct line of distributors who are above a given distributor in the MLM distributor

hierarchy or pyramid scheme and who receive overrides from his/her sales or purchases.

Scheme—A plan or program of action, especially a crafty or secret one, that can be a

systematic or organized framework‖.

Compensation plan – a structure which determines how distributors are paid from their own

sales and earn residual income from the sales of the distributors in their downline.

A binary compensation plan uses a network marketing structure, which means the company

pays a specified amount or percentage based on a specified sales volume regardless of the

number of levels needed to achieve it. This is in contrast to a multi-level compensation

structure, which pays a specific percentage based on a specified level up from the person

originating the sale, regardless of the sales volume.

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Types of MLM compensation plans

Unilevel plans:

This type of plan is often considered the simplest of compensation plans. As the name suggests,

the plan allows a person to sponsor one line of distributors, called a ―frontline.‖ Every

distributor the person sponsors is considered to be on that sponsor’s frontline and there

is no width limitations, meaning there is no limit to the amount of people one can sponsor in

the frontline. The common goal of this plan is to recruit a large number of frontline distributors

and then encourage them to do the same. This is due to the fact that commissions are normally

paid out on a limited depth, which typically means sponsor can earn commissions on sales

between 5 and 7 levels deep.

Matrix plans:

This type of plan is similar to a Uni-Level plan, except there are also a limited number of

representatives who can be placed on the first level. Recruits beyond the maximum number of

first level positions allowed are automatically placed in other downline (lower level) positions.

Matrix plans often have a maximum width and depth. When all positions in a representative’s

downline matrix are filled (maximum width and depth is reached for all participants in a matrix),

a new matrix may be started. Like Uni-Level plans, representatives in a matrix earn unlimited

commissions on limited levels of volume with minimal sales quotas.

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Binary plans:

A binary plan is a multilevel marketing compensation plan which allows distributors to have only

two front-line distributors. If a distributor sponsors more than two distributors, the excess are

placed at levels below the sponsoring distributor’s front-line. This spillover feature is one of the

most attractive features to new distributors since they only need to sponsor two distributors to

participate in the compensation plan. The primary limitation is that distributors must ―balance‖

their two downline legs to receive commissions. Balancing legs typically requires that the

number of sales from one downline leg constitute no more than a specified percentage of the

distributor’s total sales.

A simple analysis of a pyramid scheme based binary compensation plan

Suppose there are only 15 people in this world and the market is fully saturated. Now if we do a

simple hypothesis then we will understand that how the people of the bottom level in a pyramid

scheme will never get money as per the people in above 2 levels in a pyramid.

Pic- 01

Here there are 8 people in the bottom level which is 53% of total people in the pyramid (8/15 =

53%) and the market is completely saturated. Now if those 8 people want to earn, then each of

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them has to recruit, at least, 2 new people into their downline which is the minimum condition

to be paid. So, conditionally, they will need 16 new people to recruit to be paid but there are no

new people to join.

Pic- 02

Now, even, in an ideal situation, if those 7 distributors (15-8 = 7) in above 2 levels want to join

below the 8 distributors in the bottom level, then only 2 people will be able to earn money.

Because 16 people are needed to be paid for 8 people, but only 7 people are available in above 2

levels.

So we can see in bottom level in picture-02 that only 2 distributors out of 8 distributes will be

able to earn in an ideal scenario, that is, only 25% distributors will be paid only once and 75%

people will not be paid ever in the bottom level.

Now sometimes the scam artists claim that, still, those 25% people in the bottom level can be

able to be paid more than once if those newly rejoined distributors from the above levels buy

their own products again and again. But in that case, those newly rejoined distributors must buy

their own products again and again at higher price than the usual market price to benefit those

25% distributors in the bottom line which is impractical and losable. So it is simply not possible

to pay those 25% distributors in the bottom line without buying own products again and again at

higher price by the newly rejoined distributors because of market saturation and other factors.

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Difference between Legitimate Multi-Level Marketing Plan and Pyramid Scheme

Legitimate Multi-Level Marketing Plan

Pyramid Scheme or other illegal PPS

Business Focus Sales of products and services to end- users (NOT other distributors)

Recruiting new members

Profits Primarily based on the sales of products and services by the distributor. Perhaps some percentage of income from sales by downline recruits.

Primarily membership fees paid by new recruits or ―bonuses‖ for meeting recruitment goals.

Products or Services for Sale

Household goods or services that consumers typically use in everyday life. Goods and services are priced competitively with traditional retail outlets.

Often a thinly-veiled and poorly-made ―miracle‖ product or service that few consumers want or need. Merchandise is typically priced well above comparable products sold in retail stores.

Start-up Costs

Low or none at all. Substantial, often involving recurring ―membership‖ fees or expensive

―educational,‖ ―training,‖ or ―advertising‖ materials that can easily be found free of charge elsewhere.

Support System

Low-pressure, eager to answer questions about the business and provide detailed information in writing upon request, such as a business and marketing plan

High pressure, with a constant focus on recruiting new members of the scheme. Hard to reach when questions arise.

Employee/ customer References

Eager to provide references who provide honest evaluations of the viability of the MLM plan and the work necessary to succeed.

Unwilling or unable to provide references or only provides references who themselves attempt to recruit a caller.

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Sales Pitch Provides detailed information about the work involved. Offers no promise of easy riches. Does not use high- pressure sales tactics.

Involves promises of large profits with minimal work, often in high-pressure seminar environments. Uses phrases like

―limited time offer,‖ ―can’t miss Opportunity,‖ and ―guaranteed income.‖

Info Available?

Has a good report with the Better Business Bureau (BBB) and consumer protection agencies and is registered with the local Chamber of Commerce. Provides detailed information on their Web site AND provides hard copies of annual or quarterly reports, business plans, and marketing materials on demand, for little or no charge.

Not registered with the BBB or local Chamber of Commerce. Information about the company is scarce or limited to a Web site.

Merchandise Buy-Back

Buys back unsold merchandise at 90% or more of purchase price.

Refuses to buy back merchandise at all or buys back at significantly less than the wholesale price

Getting out of the Business

Easily accomplished and accompanied by a reasonable merchandise buy-back program.

Difficult, with high-pressure tactics used to keep participants in the scheme, possibly accompanied by pitches to spend more money on ―training‖ to improve performance.

How Long the Business Will Last

Sustainable, based on repeat sales of products and service

Doomed to collapse

How Likely You’ll Profit

Profits are based on time and effort devoted to selling goods or services to consumers.

The vast majority of participants lose money.

The Bottom Line

It’s a legal business opportunity that may or may not be a good fit for you.

It’s illegal. Don’t waste your money.

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How to identify product-based illegal pyramid schemes (illegal MLM)

Those pyramid schemes that offer money for simply recruiting people. This money can

come as a commission from the sale of a starter kit or as a recruiting "bonus."

Avoid any MLM that puts much more emphasis on recruiting salespeople than selling the

actual product.

Pyramid schemes charge steep startup costs for joining, including mandatory training, a

starter kit and a non-refundable membership fee.

Beware of any MLM that allows five or more levels of distributors to collect

commissions on a single sale.

Make sure that the products being sold have real value and a competitive price. Are they

reputable brands? Have the manufacturers been involved in recent lawsuits?

Avoid MLMs that only sell lists of sales leads to other MLM salespeople. This is most likely

outdated information that has made the MLM rounds several times before.

Avoid signing up for an MLM as part of a high-pressure motivational event. Consider the

information carefully and take it home to think about it.

Be wary of anyone who tries to sell you on an MLM by displaying their personal wealth.

Realize that many of the people who claim to have made millions through MLM have

actually made their money selling books and videos on how to make millions through

MLMs.

MLM companies charge for in-house seminars and sales materials—a source of revenue

unique to the industry.

As the direct result of relative vertical equality in MLM company compensation systems,

extreme horizontal inequality (EHI) is seen in payout to the entire network of

distributors.

Demand is distributor-driven, not market-driven.

The distinction between the consumer and the seller of the product becomes unclear in

MLM programs.

Emphasis when prospecting is on the ―opportunity, rather than on the value of the

products.

The illusion of virtually unlimited financial growth opportunities masks the mathematical

reality of limited advancement opportunities. Charts of compensations systems in MLM

programs often show an almost limitless opportunity for financial growth by advancing

geometrically through levels in the hierarchy of distributors to extraordinary incomes at

the top levels. Recruiters imply that such income can be reached by anyone. Such

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promises of extreme financial opportunities often mask the reality that very few could

actually make the top level.

Very small rewards are paid to distributors by the company for retailing the products.

Net profits from MLM participation are rarely sufficient to be reported by distributors.

The acid test for success as a MLM distributor is whether or not significant profits remain

after all expenses and product purchases from the company were accounted for—

enough to actually report a profit on their income taxes.

Products are promoted through MLM that are unique, emotionally appealing, and

consumable or renewable—to perpetuate the pyramid. MLM products have been

characterized as ―notions, potions, and lotions.‖ For example, personal care and

nutritional products have for years been the staples for MLM companies.

More recently, MLM founders have promoted telecommunications (long distance),

internet services, or other new technologies, which in the public mind represent almost

unlimited —even magical—opportunities for growth.

Intangibles,‖ such as investments, buying clubs, and travel opportunities have also been

promoted through MLM companies because they are renewable and allow for repeat

business.

MLM promoters engage in extensive deception and self-deception—probably more so

than with any other distribution system.

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Critical Hypothetical Analysis of Multi-Level Marketing Binary Compensation Plan – An

Ultimate Pyramid Scheme

Binary means 2. Thus, each sponsor can have only 2 distributors in their immediate downline.

The downline is the term used for those recruited distributors who are placed beneath you. The

Sponsor is the distributor who is immediately above you. However, the number of levels in the

downline is infinite in binary compensation plans. This creates a pyramid that looks like 1-2-4-8-

16-32-64-so on… when each level is added up. The first number (1) is you. In this example,

when you add up all the distributors in your downline, you would get 2+4+8+16+32+64+etc… =

126+ so on…

In a binary compensation plan, the distributor must ―balance‖ their downline. The downline is

divided into two sides; one is the LEFT side and another one is the RIGHT side. The sides are

created due to the binary structure. Binary compensation plans are infinite in levels because

group sales volume points are added up and max out at 5000 points on each side generally. You

can have 1000 distributors in your first Business Center (1-BC) possibly giving you 25,000 sales

points, but since the maximum you can calculate for commissions on each side of your

downline is 5000 points, you max out at 10,000 group sales points. If you have 5000 group sales

points on your left side but only 250 group sales points on your right side, then your

commission payout is calculated based on the lower of the two sides. In this case, you add up

250 group sales points from each side giving you a total of 500 group sales points. The

remaining 4750 GSP (Group Sales Points) on the one side rolls over to the next month. Only a

maximum of 5000 points can roll over. If you had 20,000 points on your left side, it is first

readjusted to 5000 points, and then calculated for commissions. Whatever is left over that rolls

over later.

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If you manage to collect 5000 points on your left side and 5000 points on your right side, you

max out your business center. In the event this happens, you receive a Re-Entry Certificate. This

certificate allows you to create a new Business Center at the bottom of your current business

center. This gives the distributor the chance to try and max out another business center, and so

on. Each business center can collect up to two Re-Entry Certificates. This allows the distributor

to maintain an inevitable balancing act for those earlier business centers created, and continues

the incentive to recruit more distributors. This happens because you can get 2 re-entries per

business center. You put one of the new business centers on the left side of the earlier business

center, and place the next business center on the right side of that earlier business center. So

now you are essentially balancing your stacking business centers. The following examples will

demonstrate. But first, here is the commission payout table.

Now suppose, in an ideal situation, if I have one business center which each distributor

purchases 25 sales points worth of product each week. Suppose I have 126 distributors in your

downline (2-4-8-16-32-64) making 6 levels. Level 1 has 2 distributors while level 6 has 64

distributors. Here, the total sales points are calculated by adding together the left and right side

of the downline including your own sales points: (Left Side Points + Right Side Points + Your

Own Points). Your own points can be applied to either side of your downline’s group sales

points when calculating commission payout.

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Scenario 1:

In the above example, everything is equally balanced. But what happens if I get a re-entry

certificate and begin a new business center at the bottom of the previous one? I will place a

Business Center #2 at the bottom left side of my Business Center #1.

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Scenario 2:

Business Center 1(gray) - The table here represents the distributors who pass the sales points from one

business center to the top of the other. These distributors are represented in the gray blocks in the image

above.

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Now the calculation is showing that in the 2nd level in Business Center 1, after adding the

Business Center 2, one distributor (right side) gets 1575 SP (Sales Points) and the other

distributor (left side) gets 4750 SP (3950+775+25). So I will get 6350 SP (4750+1575+25) in total

after adding Business Centre 2.

In the example above, I have two business centers. You can see that after I built my second

business center, the first business center changed and became highly unbalanced. You notice

that each level contained 1 distributor that carried on the sales points from the business center

underneath them. I will call this anomaly the Line Connecting Business Center Distributors. In the

graphical images, these distributors are represented by the gray blocks. This line of

distributors passes the total sales points from Business Center 2 on up to the top of Business

Center 1 to benefit the same distributor for a second time. As you can see, the distributor on the

6th level whom I placed my second business center underneath inherited 3175 SP! But this

doesn’t mean the distributor will collect any commission. You can see that while the distributor

collected 3175 SP on their left side, they collected 0 SP on the right side. The best thing that this

distributor could do is to apply his own points to the right side for the commission calculation.

Thus, the distributor will have 3175 SP on the left side and 25 SP on the right side. The

commission pay out chart shows that the first commission payout comes when you collect at

least 250 SP on both sides! At this current rate, it will take 10 weeks for this particular distributor

to make $40 in commissions. So just because I started my new business center at the bottom of

my previous business center does not necessarily greatly benefit those Line Connecting Business

Center Distributors.

Now, even I have an unbalancing problem. While my Business Center #2 is quite balanced

(1575+1575+25), this is not the case for my Business Center #1. Business Center #1 is

unbalanced and looks like (4750+1575+25). However, this can be fixed. This is the reason the

Binary Compensation plan allows for TWO re-entry certificates PER business center.

Let’s see what happens when I put a new business center at the bottom of the right side on my

first business center. Now I will have 3 business centers. They will look like the following:

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Scenario 3:

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Thus, in total, I will get to calculate my commission payout as the following:

BC-3 = 1000 SP left + 1000 SP right = 2000 SP total = $200.00 commissions.



So in this example, I would make $1200 in commissions for the week. Total amount of

distributors in my downline to achieve this is 379 (127+126+126).

As you can see, the first business center now gets 9525 SP (4750+4750+25). Build a couple more

business centers like this and it causes an inevitable balancing act for distributors who have

several business centers. Does the fact that I re-entered a new business center at the bottom of

a previous business center greatly benefit those who are part of the Line Connecting Business

Center Distributors? Absolutely not.

Why the majority of distributors in the downline cannot succeed

So what is the reason the majority of distributors in my downline cannot succeed? One reason is

because they cannot recruit anyone else. If I travel to a distant town and recruit 100 people into

my downline, these 100 people try to recruit a friend or neighbor and maybe each one of them

succeeds in recruiting 1 person. Now there are 200 people recruited in my downline in a given

town and saturation builds. If everyone is a distributor, who is there to sell the product to? Who

is there left to recruit? The only way for these new recruits to succeed is to now travel to other

towns that are untapped. Problem is, the top distributors in the company have already spread

out to every corner because they got placed in the pyramid when it was born.

Secondly, the majority of distributors in the example I provided do not collect enough sales

points. They are at the bottom couple levels of the pyramid and do not have enough distributors

underneath them to provide them with group sales points. It is their job to seek out ways to

make those sales points, which is why recruiting is the only way. But because of saturation, they

don’t have a chance. The inflated cost of MLM products is another reason they don’t have a

chance to succeed. Almost all of competing brands’ products are less than half the price of

MLM’s products. This in affect makes the distributors themselves the only customers. While

some distributors convince their friends, family, and co-workers to purchase some products,

there are virtually no customers outside this triangle.

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Now there are more to this binary compensation plan to discuss. At first, when you enroll

yourself as a distributor, you must choose between a 1-Business Center plan or a 3-Business

Center plan. The difference is: the 1-BC plan is just what it says, one business center as we saw

earlier. However, the 3-Business Center plan puts YOU in the first two spots in the first level. This

looks something like (1(you)-2(both you)-4-8-16-32-64-128). This 3-BC causes you to build two

business centers at the same time and then adds the sales points from those to calculate the

total sales points for the very top business center. Let’s see what a 3-BC looks like.

Scenario 4:

Thus, in total, I will get to calculate my commission payout as the following:



BC-1 = 3000 SP left + 3000 SP right = 6000 SP total = $600.00 commissions

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So in this example, I would make $1000 in commissions for the week. Total amount of

distributors in my downline to achieve this is 253 (1+126+126).

Now compare this enrolling 3-BC plan to the original example of 1-BC plan of having three

separate business centers tied together with re-entry certificates. The 1-BC Enrollment with the

2 Re-Entry Business Centers the number of distributors is 379 (127+126+126), and the

Commissions I make is $1200, but in the 3-BC Enrollment the number of distributors is 253 and

the Commissions I make is $1000.

The difference is that enrolling with the 3-BC plan versus the 1-BC plan supposedly allows the

distributor to make more commissions faster. So the 3-BC appears to be more attractive when

choosing what to enroll with. So most all distributors end up with choosing the 3-BC plan,

however, enrolling with the 3-BC puts the distributor deeper into debt and more unlikely to ever

recover the expense.

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Illegal MULTIPLE business centers in pyramid scheme

Now when you enroll with the 1-BC plan, you must purchase a minimum of 100 Sales Volume

Points every 4 weeks to qualify for collecting commissions. When you enroll with the 3-BC plan,

you must purchase a minimum of 200 Sales Volume Points every 4 weeks to qualify for collecting

commissions. Now if you signed up with a 1-BC but then managed to get a re-entry certificate

and begin a new business center, you now have MULTIPLE business centers. Once this happens,

the 200 Minimum Sales Point rule applies just as if you started with the 3-BC plan. These

minimum purchases every 4 weeks are known as "Pay to Play". However, this pay feature of a

product-based distribution system is often a clear indication it is in fact an illegal pyramid

scheme.

In SCENARIO 4 there are 255 distributors. However, in the 3-BC plan, the top three distributors

are the same person. So there are really a total of 253 different distributors. Of these

distributors, the following payout in the example pays out as the following:

This example’s structure has sales points perfectly balanced. Rollover amount will apply to both

left and right sides. I will also apply the distributors own purchased sales points to put half of it

on the left and the rest on the right.

MLM or Scam

Carrying this on for 52 Weeks (1 Year) the final results are the following for EACH

DISTRIBUTOR within each level:

All Levels – 253 Distributors (1+126+126) – $204,440 of total commissions paid out.

Top – 1 Distributor (ME) – $33,000 commission each or 16.14% of total commissions paid out

Level 1 – 2 Distributor (ME) – $16,400 commission each or 8.02% of total commissions paid out.

Level 2 – 4 Distributor – $8100 commission each or 3.96% of total commissions paid out.






Remember, in the 3-BC enrollment plan, I am the TOP distributor AND the 2 distributors in the

first level! These totals up to the following figures for a 1 year period:

253 distributors contribute to the $204,440 in commissions paid out.

I make $65,800 in commissions or 32.19% of the total commissions paid. I purchase only 3900

sales points, which account for $390 of the $65,800 I collected. The next distributor beneath

me makes $8100, or 3.96% of the total commissions paid out. The Bottom 128 distributors make

$80 each, but paid for $33,280 (51%) of my $65,800 in commissions.

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It is very clear who is earning all the benefits from the majority of the distributors who are not

making enough commission to recover their expenses. In a binary compensation plan, there are

about 50% to 66.6% of distributors who are on the bottom of the pyramid. This is because at

the most basic level, one distributor with one distributor in the left side of the downline and

one in the right side of the downline, the total amount of distributors in this pyramid is three. 1-

2, One on top and two on the bottom (2 in the bottom of 3 distributors). Thus, 66.6% of the

distributors are at the bottom. As the pyramid grows, the number of distributors on the bottom

approaches to 50%.

An example of a pyramid structured as 1-2-4-8-16-32-64-128 (=255), there are 128

distributors at the bottom of this pyramid, which accounts for 50.2% of the distributors. The

bottom distributors can never make enough to recover their expense. The only solution is to

recruit. However, a distributor that turns to recruiting must understand that the more people

they recruit into the pyramid, the higher the number of distributors at the very bottom

becomes.

Fig: Pyramid Scheme: the bottom line which accounts for more than 50.2% of the distributors

MLM or Scam

Even those distributors one level above the bottom are not recovering their expenses. The

percentage of distributors at the very bottom two levels ranges from 85.7% to 75%. Like the

previous example, when at the most basic form of this pyramid, 1-2-4, the bottom two levels

account for 85.7% (6/7) of the distributors. As the pyramid grows, the number of distributors

on the bottom two levels approaches 75%. This is shown by a pyramid like 1-2-4-8-16-32-64-

128, there are 192 distributors at the bottom two levels which account for 75.02% of the

distributors.

Now some people claim that this isn’t really a pyramid scheme because the person underneath

you could be making more money than you. This is misleading because the only way this is true

is when a distributor creates a new business center after maxing out their previous one, and

they put the new business center at the bottom of their previous one. This can be

demonstrated in the following example.

My Business Center 1 has six levels in it with 127 distributors in it including myself. I achieve

two re-entry certificates and put two new business centers at the bottom of my first one. They

each contain 126 new distributors in them. I put one on the left most end and one on the right

most end of the first business center. Each distributor’s own sales points are either split into

half or added to the left and right side of their group sales points, or they are all given to

whichever side is lacking the most points. This allows for the most effective and efficient

method of benefiting from your own sales points. Each distributor purchases 25 sales points

every week. I purchase 25 sales points myself for each business center, totaling 75 sales points

each week.

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Study the above example carefully. Sales points travel up from the very bottom of Business

Centers 2 & 3 and travel all the way to the top of Business Center 1.

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After 1 year (52 weeks), the figures come out to the following:

TOTAL – 379 distributors (127+126+126 in all three Business Centers) – $289,120 in total

commissions

ME – 1 distributor – $79,600 Commission – 27.5% of total commissions paid out

Level 1 – 4 distributors (0+2+2) each make $8100 or 2.80% of total – 2 distributors each make

$8300 or 2.87% of total.


$3940 or 1.36% of total.


$1640 or 0.57% of total.

Level 4 – 46 distributors (14+16+16) each make $720 or 0.25% of total – 2 distributors each

make $800 or 0.28% of total.


make $400 or 0.14% of total.


make

The recruiting pyramid scheme is quite clear. Even those 12 distributors, who are part of the

connecting line (designated in gray in the image of the pyramids) from the top of one business

center to the top of the other, are still not making much. Although, those 12 distributors in

those lines have a better chance than the ordinary distributor in the same level and usually

consist of the top distributor’s family and friends. These commission figures are GROSS income.

The distributor still needs to subtract their expenses for the year to get their NET income. For

most distributors in this pyramid scheme, the figure is depressing because they are usually in

the negative. Most distributors never recover their cost of taking part in this pyramid scheme.

We have only considered “active” distributors in these examples. As you can see, the bottom

layers perform very poorly, and because of this, most distributors drop out. In order for the top

distributors to keep making their millions, they must continually recruit new distributors to

replace those who drop out. If they do not keep recruiting, the pyramid scheme collapses while

the top distributors make out with all the money by defrauding all the losers.

MLM or Scam

Why Pyramid Schemes are Popular?

Now after analyzing above the pyramid scheme, asking why pyramid schemes are popular is

very legitimate. Greed is the only answer of this question. Scam artists know how greed works

and all it takes is one con man to get the thing started. Most pyramid people don't envision

themselves anywhere near the bottom layer of the pyramid. Even the greediest person on the

planet would probably see that if one is near the bottom layer of recruits it will be very hard to

get new recruits. They have to see themselves near the top in order to envision the immense

wealth from minimal effort that is going to come their way.

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Disadvantages of MLM as A Business Model

Limited "Warm Market"

MLM programs generally have you start by marketing to your so-called "warm market". Your

warm market is basically everyone you know: friends, family, colleagues, advisers, teachers,

doctor, lawyer, neighbors, acquaintances and so on.

Takes Effort, Energy and Motivation

Not only must you actively recruit your own direct downline, you must stay on top of them to

ensure that they are actively recruiting and supporting THEIR downline. Remember, this is the

way you make money in this industry. It's all about leveraged income. So understand going in

that this is a business that will require real effort on your part and sustained effort at that. But

what in life that's worthwhile doesn't, right? Also, plan to have to motivate yourself. Ideally,

you should be being "worked" by your upline to keep you on track but motivating yourself is

YOUR job. Don't expect someone to do it for you. There are too many other motivated people

out there for your sponsor to be working with.

No territorial protection to prevent market saturation

Though not normal for MLM’s, if reasonable territorial protection is not offered to participants

in a given area, the program will ultimately collapse from market saturation. Recruiters

promote the illusion of an ever-expanding market and of the potential for large payouts for

virtually all new recruits. With unlimited recruiting in a given area, new distributors soon find it

increasingly difficult to recruit more distributors. So unlike other corporate and small business

arrangements, most MLM distributors wind up losing money.

“Pay to play” feature

A related problem occurs when a distributor buys enough products to achieve a certain level of

payout qualification and has to continually buy a certain minimum quantity of products to

maintain that level. When they find they can’t sell them and finally quit, they are left with a

garage or basement full of products. I and other observers have found this to be a common

problem with MLM’s. As mentioned, MLM companies typically incorporate escalating

incentives to purchase products (sometimes at initial signup, sometimes later) to qualify for

ever- higher levels in the distributor hierarchy and/or for larger discounts on product

purchases. It is sometimes referred as the ―pay to play‖ feature of a (product-based) pyramid

scheme.

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Financial Commitment

More likely than not, you will have to commit to purchasing a certain volume of product each

month to remain eligible to participate in the program. Be sure you understand your monthly

financial commitments going in. And, while you're at it, make sure that what you'll be buying is

a quality product that you have a genuine interest in purchasing.

Breakage

Breakage is commission on sales volume that the company does not have to pay usually

because a distributor has not met a specific qualification or there are not enough levels of

uplines to pay out the full commissions, etc. It has been said that companies with binary

compensation plans live on breakage. All compensation plans have some breakage, but because

binary plans usually only pay out on the weakest leg, there is almost always a lot of

breakage. Many smaller distributors may never earn any commission if they have one

very weak leg. Various qualifications can further increase breakage. This does not mean that

the company does not pay out any commission on the sales volume. In a binary plan, your sales

volume is usually also the sales volume of several people above you. The breakage simply helps

the business builders to keep earning more commissions.

Profit centers

Profit centers are like having distributorship more than one. It happens if any distributor opens

either a 3-Business Centre or gets re-entry certificates to open new Business Centers. Usually

each profit center must be qualified and you earn commissions as if they were separate. Since

your other profit centers are placed in your downline under your first profit center, you can

earn multiple commissions on the same sales volume. You may be thinking that sounds good. It

is and it is one of the things that network marketers like about binary plans. However

authorities don't like this feature. There are no specific laws against it. Authorities don't see a

need for one person to have more than one profit center, other than just to make more money.

For some reason, authorities think that is a bad reason. Authorities think that one person

should work on only one distributorship.

Weak leg pay

Most companies pay the commission based on the leg with the least amount of sales volume.

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Destructive Effects on the Lives of MLM Participants

MLM Pyramid Schemes (PPS):

The largest and most widespread of the pyramid schemes are those that disguise themselves as

legitimate "Multi-level Marketing" (MLM) businesses. These schemes cause the greatest harm,

affect the most people, and steal the largest amount of money. They can involve millions of

people, swindle billions of money. Because they mask themselves as "sales and distribution

businesses" they unfairly compete with legitimate business.

MLM pyramid schemes require high levels of recruiting; they entice people to defraud

their own families and friends. Consequently, the social harm can be greater, even

greater than the financial damage. Your sponsor will probably ask you to make a list of

200 or so of these people and have you contact each and every one of them about your

MLM program. Reactions to such an approach will vary. Close friends and family will

probably humor you even if they have no intention whatsoever of joining your program.

Others who don't know you well may be dismissive or even downright hostile to

your approaches. Some MLMers have reported people crossing the street to avoid

them when they see them coming! So you need a thick hide in this business. And think

also about what happens if someone you care about DOES proceed with your program

and loses money. Close relationships have been destroyed as a result.

More importantly, compromising with your own self-respect by promoting something

you just don't believe in. Not only will you be lying to your downline and prospective

downline, you will also be lying to yourself. In the long-run, no amount of money can

buy back your self-respect once you've sold it down the river.

MLM pyramid schemes pretense as "independent business" they play upon and distort

important values such as independence, initiative, entrepreneurship, and personal

freedom.

MLM pyramid schemes make promises of extraordinary wealth to the participants,

people can be induced to spend all their earnings, lose or quit their existing jobs, neglect

their families and other relationships and take on great debt in the pursuit of the elusive

"dream" they have been deceptively sold.

MLM pyramids operate as private "networks" outside the mainstream of business and

normal social life. They are strictly hierarchical with uplines, downlines and charismatic

"leaders."

MLM or Scam

They require loyalty and large commitments of time, and they persuade participants to

avoid anyone ("negative") who questions or critiques MLM. Consequently, MLM

pyramid schemes can gain the power of a cult over people’s lives.

Such programs lead to inflated and unrealistic promises and inevitable market

saturation. So pyramid schemes allow a few opportunists to take advantage of the

ignorance and vulnerability of an unwitting populace—who fail to see that

mathematically, only a few can succeed at the expense of failure and losses of the

masses recruited into any given program.

MLM or Scam

A brief case study on Destiny-2000 Ltd.

Destiny-2000 Ltd. is one of the largest multi-level marketing companies of the world, and the

largest in Bangladesh. About 5 million Distributors have joined the company since its inception

in December 2000. Having its corporate office in Dhaka Bangladesh, it has branches all over the

country. This company was formed in 2000 by Rafiqul Amin, who worked in Canada for many

years before he came back to Bangladesh in search of better fortune. Before assessing the

viability of this MML Company, let us try to know certain things, which might have been still

unknown or untold to Bangladeshi people and of course those who already put millions of Taka

in this company.

Any business venture is surely destined in making profit. This is the priority for any business

unless the initiators of the project have any ulterior motive. Destiny though is also continuing to

collect millions of Taka from Bangladeshi people by showing their 'Tree Plantation Project' or

similar other projects, it is extremely important now for everyone to assess what is going on

with the public money this company has been receiving for years.

Destiny started a vernacular daily newspaper few years back with the investment of few million

takas. According to latest information, each month Destiny is losing at least 10 million Taka in

this newspaper venture. In other words, annual loss in this project is exceeding Taka 120

million.

The same group has recently purchased a satellite based television channel, which is again

incurring loss of at least Taka 30 million per month. Annual loss in this venture will also cross

Taka 360 million.

If someone will raise question as to why the promoters of Destiny are draining out public

money in such losing projects, the reply will be simple! They want to use these media outlets as

mere shields. Naturally the next question is, if Destiny is running legitimate business, why they

need any shield at all?

Destiny collected money from the people with the promise of significant annual profit. Now the

question is does Destiny make huge profit every month, so that they can afford to waste

millions of Taka in media? The reply is NO! Since there is no government monitoring of the

activities of the Multi-Level Marketing companies in Bangladesh, no one really knows how

much money any MML is collecting from the people and how much they are either investing or

simply spending in bad projects.

Destiny has at least collected Bangladeshi Taka equivalent to US$ 500 million in past 10 years

from the people, mostly by selling the idea of tree plantation at Chittagong Hill Track area in

Bangladesh. If they have at least promised to give 10 per cent annual incentive to the investors

MLM or Scam

against the amount of their investment then every year Destiny will owe Bangladeshi Taka

equivalent to US$ 50 million to be paid to its 'Customers'. On the other hand, it is also

important to investigate the size of land, Destiny might have already purchased at Chittagong

Hill Track area. According to experts, less than 300 trees can be planted on a land measuring 1

acre. It is learnt that the company has so far sold more than 2 million trees. Now the natural

question is, does Destiny own at least 6,666 acres of land at Chittagong Hill Track area? It is

important to note that, average maturing period for a tree is minimum 12-15 years. So, even if

Destiny starts paying incentives to the investors in the tree project from 2015, it will take at

least few years finally to realize the fact of scam, if any. It is clear that, none of the investors of

the tree plantation project were shown the documents of land purchase by Destiny, when the

investors put their money in such alluring projects. It may also be mentioned here that, the

agents of Destiny immediately received their 'commission' money from the company right after

they succeeded in receiving any from the investor. And, as I said, any company, offering upfront

payment of commission to its agents is at risk factor.

It is understood that, most of the MML companies are using the money in unauthorized money

lending business against monthly interest of 2-3 per cent, while some of them are even

engaging in illegal money laundering activities. It is even alleged that, some of the promoters of

MML companies are putting their money in drug and arms dealings with the hope of making

huge profit. I am not sure, if Destiny is also engaging in any such activities. But of course, one

thing is clear. Destiny is wasting money is media projects for its own protection, which evidently

give a wrong signal to everyone about the legitimacy of its activities as well as its very

trustworthiness. What happens to those people who invested hundreds of millions of Taka in

this company, if the promoters will simply disappear in one fine morning?

It is important for all those Multi-Level Marketing companies in Bangladesh to publish their

annual report with specific information of how much money they collected from people and

under which project. Then it should also be shown, how and where this investment was used

and how much profit was accrued in every year. The companies should also show clearly the

amount they are wasting in various promotional projects including media etc. There should also

be clear indication of current assets [liquid and solid] of the companies.

This company follows hybrid-50-50-balance-binary-compansation plan which also is a pyramid

Scheme according to our earlier discussion. Destiny-2000 Ltd. uses Binary Plan to distribute the

commission among the distributors.

Suppose you have sold two products to Mr. SAM & Mrs. SUE. Now they have become your

distributors because of the system. So if they sell any product, then you will get the

commission. Same thing will also happen to both of them.

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Most of their products are overpriced and not up to standard level of other regular brand

products in the market. Nowadays they are selling books and CDs of Marketing training in

overpriced rate for marketing their own products which is a clear sign of non-productive

pyramid scheme. They also have tree, real-estate and other business products which are

declared as illegal products (those products cannot be sold by MLM companies) by the

government recently.

You can see their product list here:

www.destiny-2000.info/price-list/1.html

http://www.destiny-2000.info/price-list/1.html

MLM or Scam

Government Regulation and Recommendations

Millions of people have been harmed. Enough!

Families and friends have been divided, communities disrupted. Enough!

Billions of moneys in savings have been lost. Enough!

Considering the illegal aspects of the continuing MLM business in Bangladesh, now the

government has considered to move for better regulate MLM companies in Bangladesh. The

commerce ministry has taken initiatives to increase accountability of business operations of

multi-level marketing (MLM) companies. The ministry has sent a letter to the Securities and

Exchange Commission recently, asking for its opinion on multi-level marketing act - Direct Sales

Law-2011 - in a bid to increase accountability of MLM business.

The Bangladesh Bank early this year warned against investing in MLM companies that offer

abnormal profits in a short span. The ministry also sought opinions from Bangladesh Bank,

Institute of Chartered Accountants of Bangladesh, Institute of Chartered Secretaries of

Bangladesh, Institute of Cost and Management Accountants of Bangladesh, Office of the

Registrar of Joint Stock Companies and Firms, banking division of the finance ministry and the

home ministry.

A draft law on the marketing strategy has already been formulated with provisions of prison,

fines and cancellation of licenses if the MLM companies are found engaged in 21 types of

businesses. In line with the draft proposal, the government will form a department, which will

be known as 'Direct Sales Directorate' and a secretary will be appointed to regulate the

businesses.

The MLM companies will have to be enlisted with the Registrar of Joint Stock

Companies and Firms.

The secretary will have power to suspend licenses of the MLM companies and also halt

their business if they are caught on charges of any wrongdoing.

The MLM companies will be allowed to pursue businesses under electronic marketing,

pyramid selling scheme, networking marketing, tele marketing, door-to-door sale and

mail order sale.

If any company bypasses any provision of the act, they will be penalized and the board

of directors of the company will face a jail sentence.

The MLM companies should not be engaged in 21 types of businesses including those of

land, flat, shops, office space, insurance, leasing, cooperative, trees and lotteries.

MLM or Scam

If the license of a company is suspended and it is found operating business or engaged

in sales of products, the government will freeze the company's bank accounts as per the

recommendation of the High Court.

In another source of news in bdnews24.com, it is said that some 62 registered Multilevel

Marketing (MLM) companies are now operating in the country, the commerce minister tells

parliament.

Faruk Khan, in reply to a question from Abdullah-Al-Kaiser at the question-answer session on

Sunday, said the Multilevel Marketing (Control) Act 2011 will soon be enacted in order to

regulate the MLM companies’ activities.

Mentioning the name of the registered MLM companies, the minister said the number of

clients of only one of them, Destiny-2000, could be known, which is around 4.5 million.

It said investors can get deceived by these companies that come up with schemes offering 10

percent or more profits a month upon investments in gold markets abroad or foreign

exchanges.

On the following day, the commerce minister said a guideline to regulate the MLM firms will

soon come into effect. ―An investigation is underway as we’ve got some complaints against

some companies.‖ he added.

MLM or Scam

Conclusion

In the report I have tried to show when an MLM company be considered as an illegal pyramid

schemes using different information from different sources, and we already know that Pyramid

schemes are illegal in many countries including Albania, Australia, Brazil, Bulgaria, Canada,

China, Colombia, Denmark, the Dominican Republic, Estonia, France, Germany, Hungary,

Iceland, Iran, Italy, Japan, Mexico, Nepal, The Netherlands, New Zealand, Norway, the

Philippines, Poland, Portugal, Romania, South Africa, Spain, Sri Lanka, Switzerland, Taiwan,

Thailand, Turkey, the United Kingdom, and the United States.

Here my observation, after analyzing various legal and ethical aspects, is that to be successful in

most MLM’s, a person must first be deceived, maintain his/her own self-deception, then

involve in deceitful recruitments and then deceive with downline participants. In a typical

MLM company, greed and the desire for time-freedom are the primary motivators of the

serious participants; magic and uniqueness are the necessary ingredients in the products; and

deception and duplication are the mechanism for growth of the pyramid. So considering

the all disadvantages and various relative points discussed above, I must recommend for the

banning of MLM business in Bangladesh, because most of them are offering illegal pyramid

scheme in disguise of MLM businesses.

MLM or Scam

Reference

1. When Should an MLM or Network Marketing Program Be Considered an Illegal

Pyramid Scheme? By Jon M. Taylor, Ph.D., 2000, Consumer Awareness Institute.

2. www.thedailystar.net/newDesign/news-details.php?nid=192708

3. bdnews24online.com/2011/02/06/bangladesh-govt-works-on-policy-to-regulate-mlm- companies/

4. www.atg.wa.gov/pressrelease.aspx?&id=4496

5. en.wikipedia.org/wiki/Pyramid_scheme

6. www.dip-pro.info/23094waleem=id-scheme

7. www.coachrovel.wordpress.com/2009/11/11/multi-level-marketing-mlm-binary- compensation-plan-

–-pyramid-scheme

8. www.destiny-2000.info/

9. moneyterms.co.uk/pyramid-scheme/

10. money.howstuffworks.com/pyramid-scheme3.htm

11. www.facebook.com/group.php?gid=116569834487

12. www.youtube.com/watch?v=XZP1UAXfeWg

13. www.weeklyblitz.net/1011/mml-or-multi-level-fraud#comment_submit

http://www.thedailystar.net/newDesign/news-details.php?nid=192708

http://www.atg.wa.gov/pressrelease.aspx

http://www.dip-pro.info/23094waleem

http://www.coachrovel.wordpress.com/2009/11/11/multi-level-marketing-mlm-binary-compensation-plan-â€

http://www.coachrovel.wordpress.com/2009/11/11/multi-level-marketing-mlm-binary-compensation-plan-â€

http://www.destiny-2000.info/

http://www.facebook.com/group.php?gid=116569834487

http://www.youtube.com/watch?v=XZP1UAXfeWg

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