Multi-Level Marketing and Pyramid Schemes

Abstract

Multi-level marketing is one of those business concepts that has become popular virtually in all European post-socialist systems at the beginning of their transition towards market economies; including the Western Balkans. Although hundreds of consumers have become members of their variants, and many have also suffered losses within a short time span, this has occurred virtually unnoticed by the local lawmakers. Hardly has the regulatory inertia been changed by now save the countries that have in the meantime acceded the European Union that possesses the “4Finance UAB” test to differentiate legitimate MLM ventures from disguised pyramid schemes quite similarly to the earlier ‘Amway Test’ of the Federal Trade Commission of the United States. Besides presenting these topics and filling a gap in legal scholarship, the article reflects on the reasons why more attention should be devoted to these developments by regulators being sensitive to the collective rights of consumers.

Keywords: multi-level marketing (MLM), pyramid schemes, naked pyramid schemes, Ponzi schemes, financial regulation, consumer protection, Amway test, ‘4finance UAB’ test, European Union law

JEL Classification: K22