Multi-level marketing (“MLM”) companies have become more and more common in recent years as people look for side hustles and other ways to work from home. At its core, multi-level marketing is a legitimate business strategy used by some companies to sell their goods or services. However, there is a fine line between a legitimate MLM and a pyramid scheme. So fine, in fact, that many unsuspecting and hard-working people end up spending their life savings to buy into a company when the chance of a positive rate of return is extremely low.
Pyramid scheme lawsuits being filed against MLM companies are nothing new. However, recently, there has been a new push to hold software companies liable for allowing fraudsters to carry out illegal and unethical marketing practices. This is due to the fact that most companies rely heavily on software to track the data necessary to effectively run a pyramid scheme.
To learn more about bringing a fraud claim against a pyramid scheme operator or the software company that powered the scam, reach out to the pyramid scheme lawsuit attorneys at Console & Associates, P.C., by calling 866-778-5500 or completing our online form to schedule a free consultation.
A pyramid scheme is an illegal investment scam—often pitched as a business opportunity—based on a setup where profits are predominantly derived from the recruitment of new members rather than from legitimate business activities. Initially, promoters of the scheme recruit members, promising high returns with little risk, often using misleading or false claims. The new members are then required to recruit more individuals to join, creating a pyramid-shaped structure. The scheme relies on a constant inflow of new members to provide returns to those higher up the pyramid. Pyramid schemes are unsustainable as they eventually collapse when recruitment slows, leaving the majority of participants with significant losses.
A pyramid scheme is a fraudulent investment scheme where returns are generated solely through the recruitment of new members rather than by the sale of actual products or services. In pyramid schemes, the profits made by the newer members are used to pay the earlier recruits, making the system unsustainable and destined to collapse.
On the other hand, a multi-level marketing (MLM) company operates a legal business model that sells genuine products or services. While MLMs also use recruitment and often have a pyramid-shaped commission structure, they differ from pyramid schemes in that there is a legitimate way to generate revenue outside of recruitment. In other words, MLMs focus on both sales of products and recruitment, giving them a potentially sustainable business model. However, critics point out that many MLMs emphasize recruitment over actual sales, which can blur the lines between MLMs and pyramid schemes.
A software company’s involvement in perpetrating a pyramid scheme can potentially be multi-faceted and quite significant. First, software companies develop sophisticated platforms that facilitate the operation of the scheme, making recruitment and financial transactions smoother and more appealing to prospective members. These platforms can be designed to track recruitment levels, automatically calculate “rewards” based on the number of recruits, and generate deceptive reports that project unsustainable earnings to entice more people to join.
Second, software companies can create websites and mobile applications with aggressive marketing strategies to recruit new members. These marketing strategies might include crafting persuasive narratives and producing high-quality promotional materials that misrepresent the potential earnings and benefits of joining the scheme.
Third, software companies might be involved in data mining and analytics, helping the pyramid scheme operators to identify and target vulnerable populations more efficiently. These technologies can potentially be used to manipulate individuals into investing more money or recruiting more members into the scheme.
In some situations, software companies might even develop algorithms that are designed to obscure the true nature of the scheme from regulators and law enforcement agencies, making it more difficult to detect and shut down the operation.
Know your legal options.
Learning that you’ve dumped hard-earned money into a pyramid scheme is devastating; however, there are legal options you can pursue to recover the money you lost. Primarily, these consist of investment fraud lawsuits filed against the perpetrator of the scheme and, possibly, the software company that enabled the fraudsters to carry out the conspiracy.
Often, pyramid scheme claims are part of a larger class action lawsuit, where victims band together to sue the perpetrators. However, pursuing an individual investment fraud lawsuit is also possible, depending on the situation and the amount of money you lost. Speaking with an experienced pyramid scheme lawsuit lawyer is critical to understanding the best way to pursue these complex claims.
If you have fallen victim to a pyramid scheme, you have the right to seek legal action against various parties. For example, you can sue the individuals or entities who organized the pyramid scheme. This could be the founder of the pyramid scheme or the top executives who played a significant role in orchestrating the scheme. In some cases, recruiters or promoters who knowingly deceived you into joining the pyramid scheme can also be held liable.
You can also potentially sue third parties who were complicit or negligently enabled the scheme. This includes software companies, financial institutions or payment processors that facilitated transactions for the pyramid scheme if you can demonstrate that they were aware of or were willingly participating in the fraudulent scheme.
If you recently lost money in what you thought was an “investment opportunity” but turned out to be a pyramid scheme, you are not alone. Intelligent and hard-working people across the country have lost millions of dollars in these scams. In many cases, those carrying out these schemes were only able to do so because a software company tacitly—and perhaps knowingly—approved of the scammer’s motives. At Console & Associates, P.C., we want to help you recover the money you lost in a pyramid scheme. If you are interested in learning more about pursuing a pyramid scheme lawsuit, reach out to an experienced consumer fraud attorney at Console & Associates, P.C., at 866-778-5500 or completing our online form to schedule a free consultation. We will attentively listen to your story, answer your questions, and offer you guidance about how you may be able to pursue a claim against the parties responsible for your losses.