What are MLM Scams?

This meeting took place in a five-star hotel. The supposed businessman was dressed in a suit, well-spoken, and incredibly professional. However, he told the student not to let anyone call them during the meeting. He then proceeded to describe a vague business model that operated by distributing funds and that required serious investment.

The businessman asked the student for an initial investment of a few lakh rupees, to which the student said he never had that kind of money. The suggestion from the businessman was to take a loan, which would be paid off through the business.
The student immediately saw the red flags and left. His friend had not been so lucky and had already put in money. What had just transpired was a Multi-level Marketing or MLM scam.

An MLM scheme is one where a person receives a payout for recruiting others to promote it. While it isn’t always illegal, in many cases, it is run fraudulently. Very often, the business mentioned does not exist, and the person running the MLM scam is simply trying to con as many people as possible into giving them money.

Those paying are told that they will receive a return on investment or commission. This is nothing but a false promise. The money goes straight into the pockets of the fraudsters and nowhere else. They make the whole thing look convincing by hosting initial meetings in a fancy location, while being smartly dressed and well-spoken. Occasionally, small cash amounts or gifts like watches or vouchers are given to potential victims to entice them and persuade them to recruit more people.
Also Read: How to Recognize and Avoid Fake Investment Schemes

The scam sometimes takes a darker form where the person running it pressures the victim to sign a paper stating that all investment was done voluntarily. Even if they take legal action, the case falls through as there is written proof that nobody compelled them to pay.

Vague Details. People running MLM scams will always give very vague details about the business they claim to run. They will use certain jargon and complex terms to make everything sound plausible. Those with limited awareness believe it and fall for it. However, when someone starts asking more detailed questions, the fraudster tries to deflect as they don’t have anything convincing to back them up.
Pressure to put money in. Like all scams, there will always be pressure to put in money quickly. Those running MLM scams specifically play on people’s fear of missing out. They tell them that the opportunity may never come again, and if they have no money, they should borrow it to invest.
Too good to be true offers. Those behind MLM scams often showcase a highly luxurious lifestyle. They sell this dream to unsuspecting people, claiming that if they can do it, then anybody can. However, their lavish lifestyle is either fake or funded completely on money that has come from conning people. They will also tell them that they can double or triple their returns, which is evidently a lie.
Pressure to get other people on board. MLM scams are sustained by asking others to convince their friends and family to put money into it. The fraudsters running the scam will often say this early on saying that everyone who gives money will get other people around them to do the same.

MLM scams can be convincing. Not only do they seem like a good way to make money, the people running them also appear confident knowledgeable, and well-accomplished. However, it is important not to fall into anybody’s trap and avoid any scheme that is pushed onto you.