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10-29-2012

Texas law prohibits pyramid promotional schemes. The Deceptive Trade Practices Act definition of a pyramid promotional scheme is “a plan or operation by which a person gives consideration for the opportunity to receive compensation that is derived primarily from a person’s introduction of other persons to participate in the plan or operation rather than from the sale of a product by a person introduced into the plan or operation.” Consideration means “the payment of cash or purchase of a product.” It is a State Jail Felony to prepare, promote, contrive, establish, operate, advertise or sell a pyramid promotional scheme. You can go to JAIL for from 180 days to TWO YEARS and pay up to a $10,000 fine for violating this law. You do not need to own the company or be an officer of it to be prosecuted. If you promote a pyramid promotional scheme to someone else, it is a felony offense.

Multi-Level Marketing companies are not all pyramid promotional schemes. You should look closely to see whether the company is primarily making money from bringing in new members or from product sales. However, the fact that the company primarily pays compensation based on the sale of products or services, does not mean that it will be a wise investment. If you are asked to put up your money and told to expect to make money with no effort, you should be hearing alarm bells going off. Pyramid Scheme Alert is a website that you can visit to get more information about pyramid promotional schemes. One such company was investigated by the Texas Attorney General in 2009 for being a pyramid promotional scheme based on the fact that it charged a fee for a chance to earn profits and promised that new participants could earn money after enrolling other consumers into a plan that offered discounts to a wide range of products and services. The company settled the case and agreed to pay for the costs of prosecution.

If you have a consumer complaint or want to verify whether one has been made against a company, you can contact the Texas Attorney General Consumer Protection Division at 1-800-252-8011.

page last updated 9/3/2014 3:47 PM