Toward a Uniform Approach to Multilevel Distributorships

The phenomenal growth and eventual collapse of the enterprises of Glenn Wesley Turner and William Penn Patrick during the 1960’s should have surprised no one. They were only a recent example of an old and recurrent merchandising scheme, a variant of the chain letter device. Such operations, commonly called pyramid sales schemes, can temporarily succeed where a credulous public, willing to believe that it can get rich quickly for a small monetary investment and little or no expenditure of effort, exists in a legal system lacking a coordinated program for the prevention of such machinations. Pyramid sales schemes have been called “the No. 1 consumer fraud problem in the United States today.” This article will describe the methods of operation of various types of pyramid sales schemes, distinguish them from legitimate multilevel marketing companies, survey the traditional federal administrative and state legislative approaches and the judicial response to the problem, and examine a recent state enactment and pending federal proposal designed to eliminate such activities in their incipiency.