What law says MLMs are legal?
Please let me know, in the comments section, if you know the answer…
I’m sure you will find no law that makes Multilevel Marketing a legal form of business practice.
Today in my inbox I receive an email from Robert Fitzpatrick. He writes about why the claim that ‘MLM is legal’ is false and pointless. And I agree!
To read his article I have linked it here:
Section 5 of the FTC Act
As Robert points out;
Even in the USA where the defence often gears towards ‘it’s legal under Section 5 of the FTC Act’ when in fact “Section 5 of the Federal Trade Commission Act declares “unfair methods of competition in or affecting commerce” to be unlawful.” Nowhere does it mention Multilevel Marketing or Pyramid Schemes, nor does it define or set these two categories apart from each other.
I’m going to take his argument even further and in a slightly different direction.
Section 5’s ban on unfair methods of competition encompasses not only those acts and practices that violate the Sherman or Clayton Act but also those that contravene the spirit of the antitrust laws and those that, if allowed to mature or complete, could violate the Sherman or Clayton Act. Also known as The Antitrust Laws.
[Source: https://www.ftc.gov/system/files/documents/public_statements/735201/150813section5enforcement.pdf]
The Antitrust Laws
The antitrust laws proscribe unlawful mergers and business practices in general terms, leaving courts to decide which ones are illegal based on the facts of each case.
The Sherman Act outlaws "every contract, combination, or conspiracy in restraint of trade," and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize." Long ago, the Supreme Court decided that the Sherman Act does not prohibit every restraint of trade, only those that are unreasonable. For instance, in some sense, an agreement between two individuals to form a partnership restrains trade, but may not do so unreasonably, and thus may be lawful under the antitrust laws. On the other hand, certain acts are considered so harmful to competition that they are almost always illegal. These include plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids. These acts are "per se" violations of the Sherman Act; in other words, no defense or justification is allowed.
The Federal Trade Commission Act bans "unfair methods of competition" and "unfair or deceptive acts or practices." The Supreme Court has said that all violations of the Sherman Act also violate the FTC Act. Thus, although the FTC does not technically enforce the Sherman Act, it can bring cases under the FTC Act against the same kinds of activities that violate the Sherman Act. The FTC Act also reaches other practices that harm competition, but that may not fit neatly into categories of conduct formally prohibited by the Sherman Act. Only the FTC brings cases under the FTC Act.
The Clayton Act addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates (that is, the same person making business decisions for competing companies). The Clayton Act also bans certain discriminatory prices, services, and allowances in dealings between merchants. It also requires companies, who are planning large mergers or acquisitions to notify the government of their plans in advance. The Clayton Act also authorizes private parties to sue for triple damages when they have been harmed by conduct that violates either the Sherman or Clayton Act and to obtain a court order prohibiting the anticompetitive practice in the future.
[Source: https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/antitrust-laws]
So if we strip it all down to bare bones, the Federal Antitrust Laws in the USA are prohibiting unfair methods of competition, including deceptive practices, anti-competitive mergers, predatory pricing, and trademark infringement, harming consumers or competition.
These practices are also prohibited under laws in the EU, UK, Canada, Australia, New Zealand, China, Japan, Korea, many other countries in Asia, Africa and South America.
So now we have the U.S. Federal Trade Commission Act (Section 5), the EU Unfair Commercial Practices Directive, and the UK Consumer Protection from Unfair Trading Regulations 2008. In Canada its the Competition Act, in Australia Competition and Consumer Act and Australian Consumer Law, in New Zealand the Fair Trading Act 1986 and Commerce Act 1986. It doesn’t stop there, these laws can be found all over the world. In Asia there’s often stronger enforcement in developed economies (Japan, South Korea, China), but weaker in some developing markets. In Africa these laws are often modern (e.g., South Africa, Nigeria, Kenya), but enforcement is inconsistent. And in South America these laws are generally robust (e.g., Brazil, Argentina, Chile), but enforcement can be slow.
Common Types of Unfair Methods of Competition
So what are these Unfair Methods of Competition? What do these laws prohibit exactly? Let’s have a look at some types of unfair practices and examples of how they would be violating these laws.
False Advertising
Making misleading or deceptive claims about a product or service.
Examples:
Claiming a product can cure a disease without scientific evidence.
Using fake testimonials or endorsements.
Misrepresenting the origin, ingredients, or benefits of a product.
Bait-and-Switch Tactics
Advertising a product at a low price to attract customers, then persuading them to buy a more expensive item.
Example: Promoting a “limited-time discount” on a TV, but only having one unit available and pushing customers to buy a higher-priced model.
Price Gouging
Charging excessively high prices for essential goods or services during a crisis (e.g., selling hand sanitizer at 10x its normal price during a pandemic).
Trade Secret Theft
Stealing confidential business information (e.g., formulas, customer lists, or marketing strategies) to gain a competitive edge.
Predatory Pricing
Setting prices below cost to drive competitors out of the market, then raising prices once competition is eliminated.
Example: A large retailer selling goods at a loss to bankrupt smaller competitors.
Pyramid Schemes
A business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than selling a legitimate product or service.
Unfair Competition in Intellectual Property
Infringing on trademarks, copyrights, or patents to confuse consumers or gain market share.
Example: Selling counterfeit goods that mimic a brand’s design.
Exclusive Dealing Agreements
Forcing suppliers or retailers to deal exclusively with one company, limiting competition.
Example: A manufacturer requiring a retailer to only sell its products and not those of competitors.
Tie-In Sales
Requiring customers to buy one product (the “tying” product) as a condition for purchasing another (the “tied” product).
Example: Forcing customers to buy a printer and only allowing them to use the manufacturer’s ink cartridges.
Misleading Omnibus Claims
Making broad, unsubstantiated claims about a product’s environmental or social benefits (e.g., “eco-friendly” without evidence).
How do MLMs fare against these Antitrust Laws?
Robert already touches on Deceptive Practices and I think it is fairly plain to see when you read the examples above.
We see MLMs advertising false claims, using fake testimonials or reviews, misrepresenting benefits and even origins of ingredients. We see their misleading omnibus claims in ‘organic, vegan, no harmful chemicals, no artificial preservatives, kind to the environment’ products and even the grandiose promises of riches; ‘unlimited income, retiring your husband, bought this property and car with money I earned in my MLM, you can have this too, work from anywhere, full time income for a part time job’ etc. It’s clear this is all deceptive marketing. That alone should be reason enough to get these MLMs into courts and given fines at least.
MLMs also use Bait and Switch Tactics as they draw new recruits in with a package deal that is easily obtainable, often under $100 / £100 / €100 to get your starter pack. Once you’re in they tell you you now have the obligation to pay more than this starter pack every month to remain at your current membership level, in order to qualify for discounts. Then they also tell you that if you want to earn more, you will have to start building a team and that means recruiting more people, using the same tactics that got you hooked in.
Price Gauging may not have been literally what happened during the pandemic, but the MLMs certainly abused the pandemic with their deceptive marketing tactics to recruit more people and to sell more products. They definitely maintain unreasonably high prices for the products they sell, using their false, misleading and unsubstantiated claims.
Stealing Trade Secrets is definitely something every MLM does, they all do it. Buying a top rep out and convince them to bring their whole downline is effectively stealing customer lists, or at least buying customer lists, because each and every member of that downline comes with contacts they will target to sell to. Then there’s the stealing of marketing strategies; they all use the same tactics and strategies, maybe it’s not so much stealing as it is sharing and again, a rep encouraged over from another MLM will bring their old MLMs marketing strategies with them, so guess that’s still stealing especially if the rep hasn’t been paid to move organisations. Stealing formulas? Yup, that happens too in MLMs, we simply have to look at DōTerra vs YoungLiving. Oh and that good ol’ The Body Shop that’s no longer an MLM stole their whole business idea from the Body Shop in California and paid the OG creators off with a few million dollars! Literally stole the whole business concept and made a lot of money before going bust in the end.
The same goes for trademarks, copyrights, or patents, we won’t need to dig long and hard to find some examples of those. If you do go digging, let me know examples in the comments!!
I’m going to skip the Pyramid Scheme for now, as that one is far too obvious, we’ll come back to that one in a minute.
Exclusive Dealings Arrangements are absolutely part of the MLM model, they force their reps, aka their retailers, to deal exclusively with their one MLM, limiting competition. Reps, even at the highest ranks, have had their contracts terminated because they also joined another MLM. Most MLM contracts have verbiage that prohibits the newly recruited representatives from selling other MLM products. It’s not often enforced, especially when the rep isn’t in the higher paid ranks, but the clauses are still there. Mary Kay, Amway and Melalueca reps are encouraged to rid their homes of any products that they can replace with products from their product catalogues.
Tie-in Sales are also not uncommon in MLMs, for example PartyLite would tell you not to use their wax melts in Scentsy burners and vice versa. Explicit language is used to encourage customers to only use with a burner from the same MLM brand. Other brands are shunned and made to look worse than the MLM products and the indoctrination goes so far that reps are encouraged to not even shop in regular retail stores, meaning that the MLM actively encourages unfair competition by promoting exclusivity and even promising that their prices are better because the reps can apply a discount that they cannot get elsewhere.
Pyramid Schemes
The issue with pyramid schemes is that this arguments hang on the end of the definition. If one defines a pyramid scheme as “a model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than selling a legitimate product or service.” Then the issue is in the “rather than selling” and that’s where MLMs try to catch you out. We’re selling a legitimate product, so therefore we can’t be a pyramid scheme.
UK LAW ON FRAUD
I want you to look at the UK lawful definition of a pyramid scheme:
What is a pyramid scheme?
A fraudster advertises a multi-level investment scheme that offers extraordinary profits for little or no risk. You’re required to pay a fee to enter the investment scheme. You’re then required to recruit friends or family members to enter the scheme. If you do this successfully, you’re paid out of their receipts. They are then told to recruit others to keep the chain going. Your money is not actually invested in any product. Instead, it’s simply passed up the chain of investors. Because pyramid schemes are unauthorised and make no profits, you’re very unlikely to recover any lost investment. While the fraudster at the top will collect most of the profits, those who entered the scheme later end up losing out. Legitimate trading schemes rely on valuable goods and services, while illegal pyramid schemes focus simply on recruiting more and more investors. Using hard-sell techniques, fraudsters try to pressure you into making rushed decisions, giving you no time to consider the nature of the investment. Fraudsters aim to make their business seem legitimate. This means they will often use technical jargon, impressive job titles and mock websites to look credible. If you have any suspicions about a scheme’s authenticity, you should investigate the company’s status and contact details.
However in the same token they also mention another type of fraud; Work from home scams!
An offer to make easy money by starting your own business by working from your own home. The scheme organiser will make you pay an advance fee, avoid paying you for the work you’ve done, make you buy worthless products or make you sign up others to the scheme before you’re paid.
Many of these business opportunities only allow you to earn money if you introduce more people to it. These are known as pyramid schemes.
This is exactly what an MLM does. The UK calls this fraud.
Even when you search the UK government website for information on Multi Level Marketing, the very first search results refer to Pyramid Schemes!
The UK is almost there with their definition, they specifically include ‘multilevel’ structure in their definition, they call it straight up fraud, but then they harp on about the ‘legitimate products or services’ issue again. Take away the products in MLM and you see the Pyramid Scheme, the product or services are the deception. People can buy these at other legitimate companies without having to pay a fee to become a rep, ambassador, independent consultant or whatever fancy title they want to give their recruits. The UK is close but yet so far, however…
The existence of a product is not a defence in the UK.
MLM (multi-level marketing) is “legal” in the UK but pyramid selling schemes are not. The legal line is drawn by whether income comes from genuine product sales or primarily from recruitment of new participants.
UK law is explicit; an MLM can have real products and still be an illegal pyramid scheme, if the reps’ income primarily comes from recruiting, rather than from retail sales to actual consumers, or if reps buy far more inventory from the MLM than they can realistically sell, which they primarily do to hit qualification thresholds. The existence of a product is not a defence in the UK.
How compensation is generated is the determining factor as to whether an MLM is a pyramid scheme or a legitimate business.
We all know that every single person who gains any significant income through their MLM activities can only achieve this by building a team and getting compensation based on how much their team purchases from the MLM or orders placed through the MLM website. Here is where another piece of UK legislation comes into play.
The Digital Markets, Competition and Consumers Act 2024
There is another piece of legislation that exists in the UK and hasn’t been adopted by other countries (as far as I’m aware) and that is the DMCC Act 2024, which supersedes the Consumer Protection from Unfair Trading Regulations 2008 and Alternative Disputes Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015, plus it amends a whole host of Acts (see Wikipedia article: https://en.wikipedia.org/wiki/Digital_Markets,_Competition_and_Consumers_Act_2024)
DMCC Act 2024 stands for Digital Markets, Competition and Consumers Act 2024. It is described as an act to "stamp out unfair practices and promote competition in digital markets". The Act introduced significant reforms to the enforcement of consumer protection laws. The Act further bans subscription traps, fake reviews and drip pricing. It pulls all the laws and regulations together under one Legal Act. It gives direct administrative enforcement powers to the CMA (Competition and Markets Authority) to fine MLMs and other non-compliant organisations up to 10% of global annual turnover without going to court. Those first enforcement actions launched in November 2025. Not against MLMs in particular, but the following investigations and enforcement actions have been issued:
Investigations opened into StubHub (penalty of £889,200), viagogo (ongoing), AA Driving School & BSM Driving School (same business entity, penalty of £4.2 million), Gold’s Gym (ongoing), (ongoing), Appliances Direct (ongoing) and Marks Electrical (penalty of £720,000), Emma Sleep (ongoing after court judgement), WOWcher (over £4 million in total refunded to 870,000 customers) and Simba Sleep (has agreed to change its online sales practices as a result of the investigation).
There is ONE simple question to proof if an MLM is an illegal Pyramid Scheme or not:
If you removed all recruitment bonuses from the compensation structure entirely, would distributors have a financially meaningful reason to remain active? If the honest answer is that genuine retail economics alone cannot sustain distributor participation, the plan has a structural vulnerability that no compliance documentation can reliably protect against regulatory scrutiny.
Roberts argument that, if seen purely from the point of fraud, no MLM would stand up to scrutiny against the allegations of fraud, makes perfect sense if we see the above scenarios.
Quite frankly it’s amazing that MLMs are therefore still allowed -or condoned- to operate in the UK.
Corrupt Politics
And this brings it back to the other point Robert made in his article; corrupt politics.
MLMs have gained immunity (by the inclusion of legitimate products in the definition of Pyramid Schemes, which are used to hide the truth of their nature, a fraudulent organisation) with lobbying (bribery) and propaganda (The Big MLM Lie).
This is why even in the UK, where fraud is defined on so many levels; You can see what is considered a type of Fraud on the A-to-Z of Fraud on the Report Fraud to Police UK website. https://www.reportfraud.police.uk/collection/a-z-fraud/
Heck, you could even stretch as far as to say some MLMs violate the law on Door-to-Door Sales Fraud, or Doorstep Fraud and even Business Fraud.
Yet the UK government has never taken down an MLM, equally, they’ve never successfully prosecuted an MLM. The closest the UK came to closing down an MLM was in 2007-2008, Secretary of State for Business Enterprise & Regulatory Reform v Amway (UK) Ltd.
The Initial Case ended in Lord Justice Norris deeming Amway “…was not in breach of the 1973 Act. It follows that it would not be just and equitable to wind Amway up on this basis.” I encourage you to read his reasonings in the full case law excerpt:
and also its Appeal from 2009 which was dismissed: https://caselaw.nationalarchives.gov.uk/ewca/civ/2009/32
Further to this case and political influence from MLMs, on David Brear’s blog there is a very detailed article about the politics in the UK and the way individual regulators view MLMs in private vs what the public gets to see and on which the policies, regulations and laws are based.
Some quotes from this article:
One senior regulator, Peter Bott, privately described 'Amway' as being like the 'KKK' in the 1920s. Another regulator privately warned me [David Brear] that, due to the vast amount of money involved, my life could be in danger.
UK regulators discovered that, when examined in isolation, 'Amway UK Ltd.' was a permanently-insolvent (and apparently pointless) company that had recently declared accumulated net-losses of more than $15 millions (despite collecting illegal sign-up fees). The sinking ship had been kept afloat with regular cash injections from a labyrinth of foreign-based companies centrally-controlled by 'Amway's' big bosses in the USA.
Privately, UK regulators confirmed the accuracy of my own research and analysis. e.g. 'Amway' mass rallies, held at the UK's national exhibition Centre, had regularly generated 15 thousands ticket sales at more than $150 per ticket. Privately, the same regulators agreed with my estimate that (over a 34 year period) up to one billion dollars (largely in cash) had probably been stolen from the UK via this secondary advance fee fraud, and shipped to 'Amway' under-bosses (like the Yagers) in the USA.
Mysteriously, UK government attorneys made no serious attempt to explain to the High Court what had really been occurring. I was told that the court proceedings would be closed to the public, but this was a lie. Even more mysteriously, the Judge (Mr. Justice Norris) never asked the one blindingly obvious question:
What possible lawful reason could anyone have for wasting millions of dollars on legal fees to prevent such an apparently disastrous company as 'Amway UK Ltd.' from being closed?
Thus, 'Amway's insolvent British front company survived a restricted civil investigation/prosecution without any further penalty, simply through its own attorneys pretending that the company's officers had been completely unaware that they had been breaking trading schemes legislation or of the existence of the secondary fraud, and by promising Judge Norris that the offending 'Amway Diamond' agents had already been removed under the company's own rules and that henceforth, the company's officers and agents would comply with UK law.
The rejection of the Public Interest Bankruptcy Petition against 'Amway UK Ltd.' was appealed by the UK government's attorneys only on the grounds that it broke established legal precedent, but this was declined by a 2 to 1 majority in the Court of Appeal. Consequently, no well-informed wider-criminal investigation has taken place.
The whole case fell on the Secretary of State not being able to provide evidence that Amway was in breach of the 1973 Act, which has now been superseded by the DMCC Act 2024.
This means that at this point the only way anything can change in terms MLM Pyramid Scheme prosecutions, is that the CMA can issue fines for non-compliance or that a case if brought to court to set precedent for closing MLMs based on allegations of Fraud. This would have to be a very well thought out case presentation that proves the case and gives a court judge no doubt that winding up these organisations is in the public interest.
Have a read of what’s happening at the UK’s Serious Fraud Office on David Brear’s blog “MLM: The American Dream Made Nightmare” - https://mlmtheamericandreammadenightmare.blogspot.com/2026/07/the-uks-serious-fraud-office-is-still.html
Is there any reason to believe that our governments across the globe will actively take steps to shut down there fraudulent organisations that keep changing their practices and the name of their business model? I doubt sincerely that we will see a government crack down on these fraudsters, however the legislation is now in place at least in the UK to enforce fair trade and competition, whilst also providing consumer protection. We can but hope.
So what can we do? Keep reporting!!
How to Report Unfair Competition
If you suspect unfair competition, you can report it to:
UK: Report Fraud (fka Action Fraud) https://www.reportfraud.police.uk or Competition and Markets Authority (CMA)
US: Federal Trade Commission (FTC) or Department of Justice (DOJ)
Global: International Consumer Protection and Enforcement Network (ICPEN)
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