Leveling With You About Multi-Level Marketing

By Amy E. Feldman

PHILADELPHIA (CBS) - Is multi-level marketing legal or is it really a pyramid scheme?

Skincare company Rodan+Fields got a lot of press when it held a party for four of its top salespeople to whom, with much fanfare, it awarded each a brand new Lexus SUV.

The salespeople were self-described stay at home moms, who participated in Rodan+Fields' sales strategy of multilevel marketing, in which a person makes a commission from her sales and from the sales of the people she's recruited to sell.

You've seen many brands that do that, from Amway to Avon, from Tupperware to Thirty One, and may have been recruited to participate. Are these direct sales schemes legal?

They can be, but they aren't always.

Legitimate multi-Level marketing companies charge a relatively small fee for starter kits, sell products purchased by the general public, and offer refunds for products that remain unsold.

Pyramid schemes, on the other hand, are illegal and most participants lose money because of the large upfront fees charged to the sales representative who can't return unsold inventory.

The FTC just shut down one such company called Fortune Hi-Tech Marketing which enrolled 350,000 consumers.

Before getting caught up in the razzle dazzle of what you COULD earn, ask: how much will this cost me before I start earning my Lexus, and can I return products I can't sell.