A friend's message sounds like a way out. Check these 12 signs, each from an FTC case or rule, before you pay.
This in-depth guide covers everything you need to know about mlm red flags: 12 warning signs and common scams. Based on verified income data and real-world case studies from our database of 138 side hustle tactics.
The biggest MLM red flags are pay that depends on recruiting, monthly purchases you must make to stay "active", income claims with no typical figure behind them, and lifestyle pictures standing in for numbers. The FTC's own test is simple: in a lawful MLM you can make money just by selling the product to people who are not in the business. If the pitch is mostly about who you will bring in, or what you must buy to qualify, walk away before you pay anything.
The message that sounded like a lifeline
It usually arrives at a bad moment. You posted that money was tight, or that you were tired of your job, or that you wanted to be home with the baby. Then a message from someone you have not spoken to in two years: "Hey lovely! Random question, are you open to making some extra income from your phone?"
Part of you knows the shape of this. Part of you is exhausted, and the person in your inbox looks happy, and their photos show a car, a beach, a laptop on a sun lounger. You want that to be true for you. Wanting your own income is a good instinct. It is exactly the instinct a bad pitch is built to use.
This page is the list to check before you say yes. Every red flag below comes from a regulator, a court or a settlement record, so you can test the pitch against what officials have already seen go wrong. It is part of our honest guide to MLM and direct sales.
The 12 red flags
1. The pitch is about "the opportunity", and the product is an afterthought
What it sounds like: "Honestly the products sell themselves, the real magic is the business side." Or: "You don't even need to sell, just share your story."
Why it matters: the FTC's consumer guide says that "in a legitimate MLM program, you should be able to make money just by selling the product" (FTC consumer advice, July 2022). The FTC's business guidance looks at whether a pay plan creates "incentives to focus on recruiting rather than product sales to real customers who don't also participate in the MLM network" (FTC staff, Business Guidance Concerning Multi-Level Marketing, rev. April 2024, Q2).
Ask the recruiter how many of their monthly sales go to people who are not distributors, preferred customers or family members on autoship. If they cannot answer, that is your answer.
2. The money depends on recruiting a set number of people
What it sounds like: "You just need three people who need three people." "Once you have two legs at Silver, the bonuses kick in."
Why it matters: FTC staff guidance says that "if a compensation plan requires a participant to recruit a certain number of participants or have multiple levels of recruits to be eligible for significant compensation, then, in practice, the plan likely will incentivize recruiting" (FTC guidance, Q7). The FTC consumer page puts the pyramid version plainly: "Your income would be based mostly on how many people you recruit, not how much product you sell" (FTC consumer advice).
Courts have drawn the same line. In 2014 the Ninth Circuit upheld a finding that BurnLounge was an illegal pyramid scheme "because BurnLounge's focus was recruitment, and because the rewards it paid in the form of cash bonuses were tied to recruitment rather than the sale of merchandise" (FTC v. BurnLounge, 9th Cir., June 2, 2014). For the full legal test, read MLM vs pyramid scheme.
3. You must buy every month to stay "active" or keep your rank
What it sounds like: "Just set up your monthly order so you stay qualified. You use the stuff anyway!"
Why it matters: the FTC calls this inventory loading, meaning purchases made "so that a participant in the MLM can qualify for compensation ... rather than to satisfy genuine personal or retail demand" (FTC guidance, Q10). Its guidance says that "MLMs that require participants to meet monthly or quarterly purchase quotas to maintain their eligibility ... are likely incentivizing inventory loading" (Q8).
Buying products you genuinely use is fine on its own. The FTC says purchases made "to satisfy their own genuine personal demand do not themselves indicate a problematic MLM compensation structure" (Q7). The test is whether you would buy the same amount at the same price if there were no rank to keep.
4. A cheap sign-up, then an expensive "upgrade" to earn properly
What it sounds like: "It's only $59 to join!" Followed a week later by: "To unlock the full comp plan you'll want to hit Advisor."
Why it matters: this exact structure appears in an FTC case. According to the FTC, AdvoCare "participants were charged $59 to become a distributor", but "to earn all possible forms of compensation, however, participants had to become 'advisors,' which typically required them to spend between $1,200 and $2,400 purchasing AdvoCare products" (FTC press release, Oct 2, 2019). AdvoCare agreed to pay $150 million and be banned from multi-level marketing to resolve FTC charges that it ran an illegal pyramid scheme.
Ask for the total you would need to spend in the first 90 days to qualify for every bonus in the plan. Get it in writing.
5. Cars, houses and beaches instead of numbers
What it sounds like: a reel of a white car with a bow on it. "This could be you by next summer."
Why it matters: the FTC treats pictures as promises. Its guidance says income claims can come "through images such as houses, automobiles, and luxury vacations. These are implied earnings claims" (FTC guidance, Q15). When Herbalife settled with the FTC in 2016, the order specifically prohibited it "from claiming that members can 'quit their job' or otherwise enjoy a lavish lifestyle" (FTC, July 15, 2016).
The FTC now also acts against the high-level participants who make these claims. In April 2026 it took action against Stormy Wellington, a high-level participant whose company's own disclosure said "76.8% of active participants (23,124 people) did not earn any compensation in calendar year 2023" (FTC, April 13, 2026). Two weeks later it acted against two high-level LifeWave participants, noting that LifeWave's 2024 disclosure said "79% of active participants earned nothing in commission payments in 2024" (FTC, April 27, 2026). Both were proposed orders.
Question to sit with: if the recruiter's income were as big as the photos suggest, why are they spending their evenings messaging people they barely know?
6. Big monthly income claims with nothing typical behind them
What it sounds like: "People on my team are making 10k a month!"
Why it matters: in January 2026 the Direct Selling Self-Regulatory Council, the industry-funded watchdog run by BBB National Programs, referred a company called Faberlic to the FTC and the Texas Attorney General after the company "failed to respond" to questions about claims including: "People are making between10,000-12,000 a MONTH!! Let that really sink in." (DSSRC case #246-2026, Jan 29, 2026)
The FTC's standard is that "any earnings claim should reflect what the typical person to whom the representation is directed is likely to achieve" (FTC guidance, Q13). It also says that promoting what an MLM may pay "without also disclosing the typical expenses participants may incur" is deceptive. Back in October 2021, the FTC sent a Notice of Penalty Offenses to "more than 1,100 businesses that pitch money-making ventures", including MLMs, warning that deceptive earnings claims could lead to big penalties (FTC, Oct 26, 2021).
7. No income disclosure statement, or one that hides the people who earned nothing
What it sounds like: "Every business is different, it depends what you put in."
Why it matters: in February 2023, FTC staff checked the websites of more than 600 MLMs and found "only 79 made an income disclosure statement publicly available" (FTC staff report, Sept 4, 2024, fn. 15). Of the 70 they reviewed, 29 left out "all participants who did not earn commissions or similar income" and another 24 left out everyone the company called "inactive" (p. 10). FTC guidance says "it is misleading for an MLM to exclude from its IDS information about participants who lost money or earned no money" (Q24).
Most people never see the document at all. In the AARP Foundation's 2018 survey of 601 current and former participants, "only 40% of MLM participants received a copy of the company's income disclosure statement" (AARP Study of Multilevel Marketing, 2018, p. 11). Ask for it before you join, then read it with our guide to reading an MLM income disclosure statement.
8. A "results not typical" line doing all the work
What it sounds like: the big number in bold, then a grey line at the bottom.
Why it matters: FTC staff found a "not typical" style disclaimer in at least 63 of the 70 disclosures they reviewed (FTC staff report, fn. 20). FTC guidance is blunt about what that line is worth: "A 'results not typical,' 'results are not guaranteed,' or similar disclosure is not enough" (FTC guidance, Q13). Peer-reviewed research agrees. A 2026 study in the Journal of Public Policy & Marketing reviewed over 2,000 MLM marketing materials and found that "actual disclaimers have no impact" on what people believed (Bosley, Kotasek, Greenman and Snyder, 2026).
9. Fees and costs bigger than what most people earn
What it sounds like: "It's just a small monthly fee for your website and back office."
Why it matters: the FTC staff report gives one example where "as many as 78.69% of participants made no money in commissions or bonuses. Yet, the MLM charged a monthly fee of $19.95" (FTC staff report, pp. 12-13). That is $239.40 a year paid by people who, in most cases, earned nothing back.
Some costs are much bigger. In its 2016 complaint, the FTC said Herbalife's own survey found "Nutrition Club owners reported spending an average of about $8,500 to open their club", and 57% "reported that their clubs made no profit or lost money" (FTC complaint, para. 67). In September 2026, the FTC and Washington State alleged that "most IBOs who joined WWG or LTD after 2020 spent more money on Amway products and training than they received from Amway". Amway, World Wide Group and LTD agreed to pay $225 million to resolve those allegations under a proposed order (FTC, Sept 17, 2026).
Add every monthly fee, event ticket and training subscription to the MLM profit calculator before you decide. Costs are certain. Commissions are not.
10. A buyback promise that is hard to use
What it sounds like: "There's zero risk, they buy back anything you don't sell."
Why it matters: the FTC says buyback provisions "can benefit participants, but do not shield an unlawful pyramid scheme from law enforcement" (FTC guidance, Q10). It warns that "the refund process may be too complicated" or that "obtaining a refund may require quitting the opportunity entirely", and that people "may be misled into believing that the buyback program makes the opportunity 'risk-free' and purchase more products".
That is what Washington State said happened at LuLaRoe. The Attorney General's office said "many retailers did not receive the promised 90 percent, and some received no refund at all", and retailers called the arithmetic "LuLaMath". LuLaRoe paid $4.75 million in February 2021 to resolve the lawsuit (Washington AG, Feb 2, 2021). If you are already holding stock, see how to leave an MLM and get your money back.
11. The pitch finds you at a vulnerable moment, through someone you love
What it sounds like: "I thought of you because I know things have been hard since the layoff."
Why it matters: recruiting runs on relationships. In the AARP Foundation survey, 34% of participants were recruited by a friend, and the top reason people gave for leaving was "awkward pitching to friends and relatives (39%)" (AARP, 2018, pp. 6-7 and 11). Some campaigns aim at whole groups. When Vemma settled with the FTC in 2016, the FTC said its "'Young People Revolution' campaign targeted college students and other young adults". The order imposed a $238 million judgment, partially suspended on payment of $470,136 and the surrender of certain assets (FTC, Dec 15, 2016).
The same pattern shows up in "ambassador" offers aimed at teenagers and students. Our post on brand ambassador jobs has a section on spotting the MLM version.
Question to sit with: would you take this offer from a stranger at a bus stop? If the answer is no, the friendship is doing the selling.
12. Everything points at the next rank, and almost nobody reaches it
What it sounds like: "Diamond is totally doable in 18 months if you're coachable."
Why it matters: pay in many MLMs is concentrated at the very top. One disclosure in the FTC staff report showed 92.37% of participants at "Level 1" averaging $41.69, while the 0.01% at Level 9 averaged $452,579.28. As FTC staff put it: "Half of the information displayed pertains to a mere half a percent of all participants" (FTC staff report, pp. 14-15).
In the Amway complaint, the FTC and Washington State alleged that of more than 750,000 US IBOs who bought or sold an Amway product between January 2020 and March 2024, "only 2.2 percent of them ever reached the level of Platinum or higher" (FTC and Washington complaint, para. 73, filed Sept 17, 2026). In the 2016 Herbalife complaint, the FTC alleged "the top 0.03% of U.S. Distributors (205 individuals) received average gross reward payments of over $600,000 per year" (FTC complaint, para. 92). Herbalife settled without a court finding on those allegations.
Scams that borrow MLM language
Some schemes that call themselves "academies" or "communities" use the same recruiting structure to sell courses, signals or trading education rather than shampoo. The red flags above still apply: pay for recruiting, monthly subscriptions to stay qualified, and lifestyle claims in place of typical earnings.
The largest recent example is IM Mastery Academy, also known as IYOVIA. The FTC and the State of Nevada sued in May 2025, and in May 2026 the lead defendants agreed to a settlement that "imposes a $795.8 million judgment", partly suspended, and to turn over assets "valued at nearly $90 million" (FTC, May 13, 2026). The FTC says the operation sold "training on how to invest in financial markets" and "used false or baseless earning claims to entice consumers to purchase training."
If the "product" is a trading course and the pitch is about building a team, the product is probably there to make the recruiting look legitimate.
Red flags at a glance
| Red flag | What to ask | Source |
|---|
| Pitch is about the opportunity | What share of sales go to non-participants? | FTC consumer advice |
| Recruiting quotas for bonuses | Can I earn the main bonuses with zero recruits? | FTC guidance, Q7 |
| Monthly purchase to stay active | What happens if I order nothing for 3 months? | FTC guidance, Q8 |
| Cheap join, costly upgrade | What is my total spend to qualify for every bonus? | FTC on AdvoCare, 2019 |
| Lifestyle images | What did the median participant earn last year? | FTC guidance, Q15 |
| Big income claims | Where is the typical figure, after expenses? | DSSRC on Faberlic, 2026 |
| No income disclosure | Can I see the latest one, covering everyone? | FTC staff report, 2024 |
| "Not typical" disclaimer | What is typical, then? | FTC guidance, Q13 |
| Fees above typical earnings | What do I pay each month, all in? | FTC staff report, 2024 |
| Buyback sold as "zero risk" | How do I return stock, and do I have to quit? | FTC guidance, Q10 |
| Recruited at a hard moment | Would I take this from a stranger? | AARP, 2018 |
| Everything is about the next rank | What share of people reach it, and how long does it take? | FTC on Amway, 2026 |
No single flag proves a company is unlawful, and FTC staff say "there is no percentage-based test" for a pyramid scheme. Several flags together mean the odds are stacked against you. Before you sign, run the company through our checklist for evaluating an MLM.
How to report an MLM that misled you
In the US, report to the FTC at ReportFraud.ftc.gov and to your state attorney general. The FTC lists both as the places to go when a business keeps charging you or misled you (FTC consumer advice, Sept 2024). Reports are how cases start. The Herbalife settlement led the FTC to mail checks to "nearly 350,000 people" (FTC, Jan 10, 2017), and the AdvoCare settlement returned "more than $149 million" to "more than 224,000 consumers" (FTC, May 5, 2022).
In Malaysia, every direct sales company must hold a licence from the Ministry of Domestic Trade and Cost of Living (KPDN) under the Direct Sales and Anti-Pyramid Scheme Act 1993, and promoting a pyramid scheme is banned under section 27B (Act 500, KPDN reprint). Check the company on KPDN's list of licensed direct selling companies before you join. In Canada, the Competition Bureau handles pyramid selling, which is a criminal offence there. Country by country rules are in MLM laws by country.
If the flags are there, here is what to do instead
You were right to want your own income. The pitch got that part right and the maths wrong. Selling something real to customers who are not part of a downline is still a good business, and there are versions where you keep all of the margin: selling on live shopping apps, reselling thrift finds or making UGC videos for brands. Our list of MLM alternatives with better odds compares them on startup cost and time to first sale.