The difference lies in how participants are paid. While multi-level marketing is legal, the financial pyramid is a crime. Some commentators argue that SMPs are usually nothing more than legalized Ponzi schemes. [21] [22] [23] Each state has different laws, and they take different measures regarding pyramid schemes, but multi-level marketing is legal. [24] Multi-level marketing lobby groups have lobbied U.S. government regulators to maintain the legal status of these systems. [25] Today, there is no specific legislation to combat the crime of the financial pyramid. Thus, this illegal practice is enshrined in the Law on Crimes against the National Economy. Bueno notes that the pyramid has nothing to do with multi-level marketing, which is legal. The term includes the sale of actual products and the commission that a seller receives for a portion of the other specified sellers. Although the Ponzi scheme is banned, there is still no specific legislation that could remove the recurring practice in the country. In general, those responsible are listed in the Law on Crimes against the National Economy (Law 1.521, 1951), with a maximum penalty of two years in prison, in addition to a fine. Braga argues that in this case, the legal norm has not fulfilled its crime prevention function and does not intimidate this type of fraud, which is becoming increasingly common in Brazil.
In contrast, Ponzi schemes may «claim to sell a product,» but often «they simply use the product to hide its pyramid structure.» [11] While some people generally refer to MMPs as «pyramid schemes»,[15][16][17][18] others use the term to refer to an illegal Ponzi scheme disguised as MMN. [19] Multi-level marketing is a legal and authentic practice because it markets real-world products or services. Like the eight-ball model, the dream loom[5] deceives potential investors by claiming to turn one hundred into eight hundred. This scheme has a circular structure, as the increase in the number of new recruits brings individuals closer to the center of the circle, hence the «loom» in the name. Each participant must recruit two people without providing them with any service or product. The scam usually appears online around the world under various pseudonyms such as «loom circle» or «fractal mandala». [6] The dream loom was considered illegal in several American cities. [7] «This system is legal. It is supported by the sale of the products and not by the support of new members,» the lawyer said. X – Violate the purchase contract in several instalments, cheat the draw or not deliver the item sold without returning the deposits paid or, in the case of reserved area sales, if the contract is terminated by the buyer, an amount greater than that corresponding to the depreciation of the object. Bruna Amalcaburio defines the system as an illusory model for offering easy and fast money. In a Ponzi scheme, an organization requires people who want to join to make a payment.
In return, the organization promises its new members a portion of the money raised by each additional member they recruit. The directors of the organization (those at the top of the pyramid) also receive a portion of these payments. For administrators, the program is potentially profitable – whether they work or not, members of the organization have a strong incentive to continue to recruit money and direct it to the top of the pyramid. To make money, there is not much secret formula: it takes effort and time. Profits can go up if you run your business well, but nothing is as simple and as fast as scams make it out to be. The financial pyramid is based on the promise of profits and the recruitment of new members. Look at how it goes: TelexFree reportedly caused a global loss of $3 billion. In 2020, businessmen Carlos Nataniel Wanzeler and Carlos Roberto Costa were sentenced to 12 years and 6 months in prison. Did you enjoy learning more about financial pyramids? Let us know in the comments! «Anyone who participates in the pyramid to recruit new members, whether they have made a profit or a loss, commits the crime,» the lawyer said. The loss of these people was estimated at nearly 5 billion reais.