What is a Pyramid Scheme?

pyr·a·mid scheme

noun

1. 1.

   a form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones.
   
   
   
   

   
   

According to Federal Trade Commision, it goes this way:

Here are more guidelines to look out for

Multi-level Marketing and Pyramid Selling in Canada

What Is the Competition Bureau?

The Competition Bureau is an independent law enforcement agency responsible for the administration and enforcement of theCompetition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act. Its role is to promote and maintain fair competition so that Canadians can benefit from competitive prices, product choice and quality services. Headed by the Commissioner of Competition, the organization investigates anti-competitive practices and promotes compliance with the laws under its jurisdiction.

What Is the Competition Act?

The Competition Act is a federal law governing most business conduct in Canada. It contains both criminal and civil provisions aimed at preventing anti-competitive practices in the marketplace.

Multi-level Marketing Plans and Schemes of Pyramid Selling

The Competition Act explains the differences between multi-level marketing plans and schemes of pyramid selling, and sets out the responsibilities for operators and participants in these types of plans.Multi-level marketing, when it operates within the limits set by the Competition Act, is a legal business activity, while a scheme of pyramid selling is illegal as defined by the law.

What Is Multi-level Marketing?

Multi-level marketing is a plan for the distribution of products whereby participants earn money by supplying products to other participants in the same plan. They, in turn, make their money by supplying the same products to other participants.

What Should I Look Out For?

Although multi-level marketing plans, as defined in the Competition Act, are a legal business activity, there are certain things you should be aware of before joining such a plan.

It is illegal for operators or participants in a multi-level marketing plan to make representations relating to compensation or earnings under the plan unless they include the amount of compensation actually or likely to be received by a typical participant of the plan. Such representations can mislead potential recruits to believe that it will be easy to make large amounts of money.

As well, operators of, and participants in, a multi-level marketing plan should ensure that any representations made about the plan are — or include information that is — fair, reasonable and timely as the plan relates to:

• the different levels of earnings or compensation received by participants in the plan;
• the amount of money earned by a typical participant; and
• the time and effort required to reach specific levels of income.

What Is a Scheme of Pyramid Selling?

A scheme of pyramid selling is a multi-level marketing plan that incorporates any one of a number of specified marketing practices that make it a criminal offence under the Competition Act.

It is illegal if:

• participants pay money for the right to receive compensation for recruiting new participants;
• a participant is required to buy a specific quantity of products, other than at cost price for the purpose of advertising, before the participant is allowed to join the plan or advance within the plan;
• participants are knowingly sold commercially unreasonable quantities of the product or products (this practice is called inventory loading); or
• participants are not allowed to return products on reasonable commercial terms.

What Are the Possible Penalties?

People who contravene the multi-level marketing or scheme of pyramid selling provisions of the Competition Act can be convicted and sentenced to a fine at the discretion of the court or a prison term of up to five years, or both.

How Do I File a Complaint?

If you believe that someone has in some way contravened any of the legislation enforced and administered by the Bureau and you want to complain, you can telephone, fax, e-mail or write the Bureau at the numbers listed at the end of this publication.

The Bureau conducts its investigations in private and keeps confidential the identity of the source and the information provided. However, if someone has important evidence about a contravention of any of the acts the Bureau administers, that person may be asked to testify in court.

Written opinions

The Competition Bureau facilitates compliance with the law by providing various types of written opinions subject to fees. Company officials, lawyers and others are encouraged to request an opinion on whether the implementation of a proposed business plan or practice would raise an issue under the Competition Act. These written opinions are binding on the Commissioner of Competition when all the material facts have been submitted by or on behalf of an applicant for an opinion and when they are accurate. A specific written opinion will be based on information provided by the requestor and will take into account previous case law, prior opinions and the stated policies of the Bureau.

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The Bureau produces CD-ROMS and publications on various aspects of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act. To find out more about our CD-ROMs and publications, contact the Information Centre:

Information Centre
Competition Bureau
50 Victoria Street
Gatineau QC K1A 0C9

Toll-free:  1-800-348-5358
National Capital Region: 819-997-4282
TDD (for hearing impaired):  1-800-642-3844
Fax: 819-997-0324
En ligne: Enquiries/Complaints
Web site: www.competitionbureau.gc.ca

This publication is only a guide. It provides basic information about the Competition Bureau and the acts it administers. For further information, you should refer to the full text of the acts or contact the Competition Bureau at one of the numbers listed above.