Is this a pyramid scheme? If so, how do I stop it?

Question

A dear, yet very naive friend of mine has fallen into the hands of what I think to be a pyramid company (operating from switzerland). I've talked with this friend of mine for a while yet she is unwilling to overthink her decision.

The company at hand sells food supplements, and offers you the possibility of "gaining money" by "working" as a salesperson for them. The food supplements are low-quality and extremely overpriced (~200$ for a package). You can easily buy a similar package for 1/10th of the price.

Now, "working" as a salesperson isn't really working for them, as you aren't employed. You have to buy the packages (for the FULL price), and then sell them online, refunds impossible (you lose the possibility of "working" for them).

Once you've sold ~25 packages within a month, you get 10% off of your next package (wow, amazing). And this keeps on going, you're getting a few very small "benefits" the higher you get, at some point even money. The company has ~2-3 "selfmade" persons earning allegedly a few thousands per month just by selling those supplements online.

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My questions now are:

1. Am I right to believe that this is indeed a pyramid scheme?
2. How can I do something against this company?

Answer 1

It seems that your friend is taking part in a multi-level marketing scheme. However, this does not necessarily exclude a pyramid or snow ball scheme.

Both can be illegal in Germany and Switzerland under the respective unfair business practices codes, because the systems do not rely on the sales of goods and services, but on the continuous recruitment of further sales persons.

To clarify whether your friend's system is illegal, you could report the scheme to the competent watchdogs. In Germany the "Zentrale zur Bekämpfung unlauteren Wettbewerbs" in Bad Homburg is recommendable. As the company is operating from Switzerland, German law not be applicable without more. Therefore also contacting the Swiss authorities may be advisable. This seems to be the "Staatssekretariat für Wirtschaft SECO" in Bern.

Answer 2

The basic definition of a pyramid scheme boils down to a business model in which the sales people rather than the customer is the primary source of income.

For example, the U.S. Federal Trade Commission website employs the following explanation which is widely used by courts in many countries:

Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public.

This scheme seems likely to fit that definition, because the higher ups appear to make most of their money from purchases at more than fair market retail value from the salespeople, rather than mostly from sales to members of the public who will use the product. So it is probably illegal.

Either German or Swiss officials would have the authority to intervene.