Given the current regulatory environment, it is interesting to see what a person motivated to create and profit from a pyramid scheme might do. One could very deliberately accomplish this and would likely get away with it in most states by following these steps:
1. Decide on a compensation system (binary, breakaway, matrix, etc.) that would operate in pyramid fashion using products as a vehicle for getting people to pay into the pyramid. Offer a complex system of incentives for progressing to higher and higher levels through intense recruiting, with a distributor ten levels up getting as much or more per sale as the person selling the products. The income to those at the top of their respective pyramids will be huge from leveraging the efforts and purchases of those in their downline. Everyone will recruit like crazy to get to the top level. [Beautiful!]
2. Develop a product that has emotional or mystical appeal, is too unique to be compared with something that could be purchased at retail outlets, and is highly consumable. For simplicity, hire a qualified nutritionist or herbalist to search the scientific journals for some newly-discovered substance that has been shown to help (even if only a minimally) prevent cancer, minimize heart disease, slow aging, enhance sexual function, and/or stimulate energy and brain cells. It is best if this substance comes from some exotic rain forest or other remote location. [Many consumers will think anything this exotic with such magical benefits could not be illegal.]
3. Then combine this exotic substance with some proven ingredients found to be effective for combating certain ills and arrange to have it manufactured by any of a number of companies that do this routinely. Make certain it is unique enough that it cannot be compared with existing off-the-shelf products.
4. Give your program a name that has a ring of success attached to it, such as “Wealth Plus.” Then give your product a magic sounding name, such as “WP++.”
5. Price all of the variations of the product at a price that allows plenty of margin to support the distributor network that will sell it, with a nice margin for your firm. [This margin would be large enough that it could be considered the pyramid premium contribution to your pyramid scheme. But don’t tell anybody.]
6. Since the product cannot be compared exactly with any existing product, you may produce it for $3 or $4, for example, and list it for sale to consumers for $75. Of course, your distributors would be able to buy it wholesale for about $50. [What a great way to fool the regulators! Distributors may actually be paying $25 a month from the pyramid premium portion of the price—or large multiples of that amount— into the pyramid, but because of the “legitimate product” disguise, this can be done over and over ad infinitum without detection and appear perfectly legal, except to the most astute enforcement agency officials.]
7. Prepare literature touting your formulation as one of the greatest advances in nutrition, and offer it in conjunction with a compensation system that is “truly a revolutionary money-making program,” one destined to make those persons who “get in on the ground floor” an obscene amount of money – or at the very least, a nice “residual income” for the rest of their lives. Promise them an early retirement with the money to travel or pursue their favorite interests if they will get in early and build “an organization.”
8. Set up your compensation plan so as to create the illusion for distributors that they can achieve success. [Hire a statistician to hide the numbers so that new recruits and enforcement agencies will not realize that this “great opportunity” will be profitable primarily to you and your founding distributors at the top of the pyramid.]
9. Set up minimum purchase requirements and volume incentives to qualify for progression into ascending distributor payout levels. Make these volume requirements high enough that distributors will be on a continual treadmill trying to achieve that “next level.” Of course, you must write into your “Policies and Procedures” manual the requirement that 70% of the products must be sold at retail to at least ten actual customers to give credence to your claim to be a direct sales company. [Fortunately, you know that you won’t need to enforce the rule, as no one in law enforcement will check up on you.]
10. Join the Direct Selling Association (DSA). If you encounter any suspicion that your actual customers are distributors stocking up on products, enlist the help of the DSA to make the case that you are a legitimate direct seller.
11. Put together a starter kit of sales materials, and enough products to get started. But check out local state laws regarding pyramid schemes to make certain the charge for the kit and products fall within what is legally acceptable. [This is not hard to do. The “legitimate product” rule and other restrictions are easy to get around. A good attorney will keep you out of hot water, while you conduct your pyramid scheme.]
12. Begin selling this pre-launch “ground-floor opportunity” to MLM enthusiasts and through MLM publications, announcing a launch date when all who enter can expect to prosper beyond their wildest dreams. Set up a web page and promote it heavily to those seeking an inside track on a “pre-launch opportunity.” [They will scramble to be the “first ones in.”]
13. Train the “ground floor” distributors in how to recruit, advertise, hold opportunity meetings, etc. [and most of all – to stock up on products to “build their downline.”]
14. Pump them up with promises of huge paychecks soon to come. They will even pay to attend weekend retreats and “sales training” programs [actually recruiting programs]—and for tapes, books, company T-shirts, web sites, and all the other programs and paraphernalia that will help them to be “successful.” [a separate “tools” business, or a pyramid within a pyramid” – expanding the income of the top people – so you won’t have to enrich and motivate them solely on product sales to distributors]
15. Build your infrastructure as you go, developing new products and geographical divisions as needed to continue the illusion of a “ground-floor opportunity.” [Or – If the “first wave” is successful—you can take your money and run as soon as de facto saturation causes sales (to recruits) to level off. Spend your money or shelter it in offshore accounts so that if regulators catch up with you the fines you actually pay will be but a drop in the bucket compared to the take you have set aside]
16. Since the money will flow in bountifully, you may choose to stick around. If so, spend some of your abundant supply of money supporting the political party in power. Donate to the campaigns of all likely candidates for Attorney General, regardless of party. [They will then be obligated to indefinitely delay action should any zealous investigators suspect you are conducting a disguised pyramid scheme.]
17. Donate to university scholarship funds and popular local charities, making certain that timely press releases accompany all such giving. Support local athletic programs, with priority to highly visible scoreboards and other showy paraphernalia. [Enforcement agencies will not get popular support for going after an MLM that is doing so many good things, if your largesse is well-placed and very noticeable.]
But seriously, after you’ve proven that it can be done, please donate the profits to charity – or to exposing MLM fraud. These instructions are given just to illustrate a point. Don’t blame me if you make your fortune exploiting your dearest associates and loved ones – and in the process lose what is really important in life.