While MLM can remain legal, it is often difficult to distinguish it from those pyramid models or Ponzi schemes. The latter 2 are illegal as money is earned directly from the downlines not by selling products to the others.
Take for example, a pyramid model, whereby each member is required to recruit 3 downlines and each member is required to pay $1000 to join. Then he or she has to stay in the system for a period, during this period, he or she is not allow to withdraw.
The table below shows how all the money goes. In this table, the money collected is then divided by the total number of people. It's the most ideal case. But in reality, this is not the practice because the "cheater" would then use the money to distribute the promised high returns to those joined earlier so as the whole scam is not to be found out so easily and to convince them to invest more.
The system collapses for sure when the "cheater" has problems finding enough money as returns for the members or when the flow of money in slows down or when the "cheater" runs away with the money he has.
By simplify the expression for the amount of money each person gets for the nth level, it's not difficult to see that one cannot get back his $1000 unless n is big.
This model has its limit - no. of people joining in. The world population now stands at 6.6 billion. Connect this number to the equation above you'll get n = 20. It cannot go beyond 20 levels.
So I wonder why people can be easily fooled into the system. Never believe in earning while doing nothing or earn money quickly. Chinese has a saying 天下没有白吃的午餐, it means that we need to work in order to earn that money.
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