Multi-Level Marketing (MLM) Companies – What you need to know
There is a lot of Multi-Level Marketing (MLM) companies out there. But most of them in the crypto space are illegal.
What is an MLM (Multi-Level Marketing)?
Multi-level marketing companies (also called “MLM’s”) rely on a layered recruitment and commission structure to market the organisation.
While there are some legal MLMs out there, most of them in the crypto space are operating illegally as “Pyramid Schemes” (you may be familiar with the most famous of these; the Ponzi scheme).
As the name suggests, the money you put in is typically funnelled upwards, with no guarantee of getting any earnings, or even what you’ve initially contributed.
You can read more about these schemes on the Commerce Commission website.
MLMs typically take many forms, but has the following essential elements:
- it offers a financial return based on the payments made by new recruits (e.g. you asking your uncle John perhaps)
- the return is dependent primarily on the continued recruitment of new members, not sales of a product or service (after uncle John, you’re probably told to reach out to other friends or relatives).
- the primary motivation of many participants is the opportunity to make money by recruiting others.
Example scenarios: You are told to purchase a “Smart Contract” plan from XYZ MLM programme. You’re then told then each time you recruit or bring in someone and they purchase a Smart Contract, a portion of their contribution will funnel into your wallet to help fill your Smart Contract.
Why are Multi-Level Marketing companies an issue?
The basic idea of these scams is that fund generation is centred around recruitment, and may often also involve “gimmick” products (such as certificates) or overpriced products and services that have little to no resale value and are not likely to be purchased again (such as personal development programmes or general financial information).
These schemes often seem extremely enticing for their ability to deliver a high rate of return to early investors before they run out of new recruits and inevitably fall apart – leaving the later investors at a loss.
This can mean that while you are seeing returns now, yourself and the people you are recruiting (who might even be family or friends) are at a high risk of losing out when the inevitable crash occurs. Most historic cases have shown these schemes typically leave a slew of struggling victims in their wake.
To put it simply, nothing is guaranteed, and in most instances, we see customers who are victims of MLMs unable to retrieve their hard earned savings. In addition, with how cryptocurrency transactions work, as soon as your crypto assets leave your wallet, the transactions are irreversible.
What are some ‘real life’ examples?
For more information on the latest MLMs involving cryptocurrencies, you can check out:
Easy Crypto’s tips on ‘Best Practice’ to safeguard against MLMs
At Easy Crypto, we care about the safety of your crypto assets. We understand that it is not always easy to tell if you are targeted by an MLM scheme. As a best practice, before sending your crypto asset to anyone, please:
- Do NOT send to any of the schemes listed above, especially through us – Easy Crypto do not wish to enable or promote the operation of these immoral and potentially illegal operations.
- Do your research on any crypto opportunities.
- If they heavily push a recruitment scheme, or if the method of revenue generation is unclear – it is likely an MLM so don’t get involved.
- If in doubt, come talk to us! Our team is always happy to give free (and confidential) advice on any opportunities you are looking at getting involved with.
For more information on other scams involving cryptocurrencies, you can check out our guide on fighting scams and fraud.
As part of our endeavour to keep you informed, please check out Easy Crypto’s ‘Guide’ from time to time with any new updates. Additionally, the Financial Markets Authority is also a good website to keep yourself updated with any circulating scams involving cryptocurrencies. Invest safely!
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated February 27, 2023