Here are parameters posted by the FTC (Federal
Trade Commission):
"Multilevel marketing plans, also known as
"network" or "matrix" marketing, are a way of selling goods
or services through distributors. These plans typically promise that if you sign
up as a distributor, you will receive commissions -- for both your sales of the
plan's goods or services and those of other people you recruit to join the
distributors. Multilevel marketing plans usually promise to pay commissions
through two or more levels of recruits, known as the distributor's
"downline."
If a plan offers to pay commissions for
recruiting new distributors, watch out! Most states outlaw this practice, which
is known as "pyramiding." State laws against pyramiding say that a
multilevel marketing plan should only pay commissions for retail sales of goods
or services, not for recruiting new distributors.
Why is pyramiding prohibited? Because plans that
pay commissions for recruiting new distributors inevitably collapse when no new
distributors can be recruited. And when a plan collapses, most people -- except
perhaps those at the very top of the pyramid -- lose their money."