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Amway Forever: The Amazing Story of a Global Business Phenomenon by Kathryn A. Jones

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Pyramid Structures under Scrutiny

During the 1970s one-on-one marketing had become more common for vitamins, household products, and cosmetics—remember the familiar ding-dong, “Avon calling” commercials? But as legitimate multilevel marketing, or so-called network sales grew, so did illegal pyramid schemes. One of the most famous and basic pyramid schemes was the chain letter. It didn’t offer a product or service, just a promise that if the recipient passed along the letter and sent a dollar or some other amount to the person at the top of the pyramid, the recipient eventually also would move from the bottom to the top and reap financial rewards, too. So many other abuses flourished that U.S. Senator Walter Mondale in 1974 targeted pyramid and Ponzi schemes as the country’s biggest consumer fraud problem. Both use fraudulent methods to entice people to hand over their money, but there are some major differences. In a Ponzi scheme, such as the one New York financier Bernie Madoff used to defraud his clients, the promoter has no product to sell or commissions to recruit new members. The structure is named for Charles Ponzi, an ex-convict in South Boston who in 1919 came up with a nifty “investment” idea. He sold promissory notes payable that promised a 50 percent return in 45 to 90 days, collecting $15 million. Then he used the money from the new investors to pay off the first ones. When the scheme collapsed, thousands of people lost their investments. Madoff’s Ponzi scheme also ...

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