The inception of the world wide web has proliferated the pyramid scheme in the same way the fast food industry has exploded the production of french fried potatoes. Millions of dollars are lost each year by victims of these multi-level "business opportunity" scams.

According to a report published by the FTC, over 1.55 million U.S. citizens lost money to illegal pyramid schemes in 2004. The total incidents of such loss exceeded 2.55 million, indicating that many consumers were duped more than once by this type of scam.

Over 90% of all acknowledged cases involved either an email communication, or a print reference (newspaper, magazine, etc.) to a web site where consumers were exposed to an income opportunity that turned out to be a fraudulent multi-level marketing plan. It is clearly safe to say the internet has become the number one courier for this particular form of deception.

So what exactly is a pyramid scam? It's a fraud model that generates revenue through the exponential recruitment of opportunity seekers, all of whom are required to pay a fee for joining the organization.

The majority of these membership fees are collected and divided among the new recruit's upline. The higher an individual is positioned within the pyramid structure, the more income he or she will receive as a result of the recruiting efforts of those on the lower levels.

Ultimately, the pyramid system will collapse as the market for new members is saturated. Those at the top will walk away with considerable profits, while the overwhelming majority of participants will have lost their entire investment.

Criteria set forth by the FTC to define an illegal pyramid scheme is based on the following primary consideration: Is the consumer required to pay anyone for the opportunity to operate a work from home business and, if so, is the consumer led to believe that most of the money earned through the opportunity will be from recruiting others to the business model and/or from purchases made by these recruits?

For good reason, pyramid schemes have been made illegal in most countries. Sadly, this legislation has done little to curtail the problem, and the constant resurgence of unethical, multi-level confidence tricks can be observed daily via the internet.

Many of these programs attempt to obscure their true nature by centering their program around a product. However, it's not very difficult to see past this thin disguise if you apply a bit of sound judgement.

For instance, many of the products attached to pyramid scams are nothing more than brochures, audio tapes, or ebooks that instruct new recruits as to how they might refer others to the opportunity. A collection of names and addresses, represented as a list of potential referrals, or "leads", is another bogus product offered by many pyramid scams in exchange for their membership fees.

Some multi-level income plans broker more substantial products, such as vitamins or functional PC software. However, when these products are sold at well beyond fair market value, and the majority of retail activity is actually the result of new recruits buying from their upline, there is a fair chance the business model is an illegal pyramid scheme.

As a new opportunity seeker, how can you avoid becoming a victim of illegal pyramid systems? By keeping it simple.

There really is no reason to complicate the process of doing business. You sell a product or service, and in doing so, you collect a prescribed amount of currency.

Maybe you own the product you are marketing, or maybe you are an affiliate marketer who promotes other people's products in exchange for a percentage-based sales commission. Either way, there is no need to involve a forced matrix, a three-tier referral network, a power leg, or any other superfluous gathering of people who are willing to surrender a portion of their earnings to their upline structure.

Honestly, why bother with a system that uses a complex referral based compensation plan to obscure the simple process of profiting from direct sales? You are far better off looking for an affiliate program that is based on a quality product, and compensates you through a staightforward commission plan.

Allegedly, not all multi-level marketing systems are pyramid scams. I'm not a lawyer, so I lack the acuity required to validate or debunk such an assertion.

What I can say with confidence, however, is that the majority of multi-level payment plans I have encountered bear a startling resemblance to pyramid models. For this reason, I urge you to look deeply and carefully into any affiliate program or income opportunity that functions from a multi-level platform.

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Tim Whiston is a full-time entrepreneur and internet marketer. He publishes a monthly ezine, and is the author of Net Marketing Exposed.

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