Is MLM a Scam Like a Chain Letter?

A chain letter may appear like MLM because one person is sending a letter and making money off each person that comes in later – but MLM is not a chain letter.

Chain Letter Scheme

An illegal scheme whereby someone writes a letter that attempts to induce the recipient to make a number of copies of the letter and then pass them on to one or more new recipients. To participate in the chain letter, recipients must send money to the sender of the letter. What makes this an illegal scam and not MLM is there is no real product or service offered to a consumer.

In a recent chain letter case brought before the Federal Trade Commission the document stated, “The FTC alleged the scheme is an illegal chain-letter; that the earnings claims were false; and that most participants would fail to make any money.”

Interesting…and inconsistent.

The below graphic was taken from a STATE lottery web page. The text below the graphic read: “Players now have 4 chances per week to become a millionaire!” I don’t know about you, but I would call that an earnings claim. It’s also proven that most people who put in their money will “fail to make any money.”


In addition, I’m finding it difficult to figure out where the “real” product is in lotteries – or in gambling, for that matter.


What was most fascinating were these two statements from the FTC’s web site concerning “foreign” lotteries:

  1. “If you play a foreign lottery, you’re violating federal law.”  I think it’s obvious the government is after money for themselves – the only difference between state and foreign lotteries is that the US government can’t benefit financially from foreign lotteries.
  2. “There are no secret systems for winning foreign lotteries. Your chances of winning more than the cost of your tickets are slim to none.”

Wow – can you believe that statement? Like the “chances” are any better in the USA!

MLM is not a chain letter and chain letters rarely use MLM to deploy their scams. But to the uneducated a chain letter can look like an MLM scam because one person is sending a letter to another, who would in turn send it to another, and each person “could” make money. This activity is illegal and unethical because there’s not a product that makes anyone’s life better.

See What is MLM? to differentiate between a chain letter and MLM.

Recommended next page: The History of MLM.

Tim Sales

About the Author

Tim Sales

Tim’s experience in building his own downline of 56,000 network marketers helped him develop his signature training series. A public relations ambassador for the network marketing industry, Tim has also dedicated his time to debunking the false information spread about the network marketing industry.

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Patti Roney

I am very thankful for the differentiation between having a product and not having a product which is the determining factor between “chain letter” or “illegal pyramid” and legitimate, powerful business model! Thank you for your education!

Ambrose Ngu

Thank you for pointing out the one single most important difference – product!! Thank you, Tim.

Steve Stearns

I have never played the lottery, I much prefer the government to simply ask me to fund something rather than to trick me or anyone else out of funds to fund whatever turns up. Give me a product or service that is worthwhile and I’ll find a way to pay for it.

Joe Kresser

It is so important to get the education out about things like this. I am starting to see a few “So Called MLM” companies that do not have a product or service to sell but are baised on recruting to make money and they cover it all up by you signing up for a web site “for training” so that it looks as though they are providing you a service. All this is is a modern day chain letter. Tim maybe you could do a little research on some of these and expose how they work. Joe K

Kelly S.

Thank you for outlining a fact most people don’t understand!!!! Great job!

Valencia Burton

What a wake-up call! Really. Thank you Tim for showing the difference between exchange and no-exchange. And you can not expect to get anywhere in life without, at least, a fair exchange.

Gavin Chapman

It’s the “get rich quick and easy” bulldust which perhaps leads prospects to believe that all they have to do is join, go to meetings and the money will follow. So we attract lottery-minded people or those who like chain letters.

Rolf Hefti

With this information, anyone should be able to distinguish now between a legitimate mlm business and a fraudulent operation like a chain letter.

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