Group gives tips on how to spot pyramiding schemes

As many Filipinos resort to various ways of earning money such as investing in direct selling and network marketing, especially during the COVID-19 pandemic, the Direct Selling Association of the Philippines (DSAP) on Saturday gave tips on how to avoid getting sucked into scams such as pyramid schemes.

Interviewed on Dobol B TV, DSAP president Joey Sarmiento said that direct selling and multi-level marketing are premised on person-to-person selling “when a company sells you its products through independent distributors.”

In particular, Sarmiento said that multi-level marketing is a form of direct selling, wherein the compensation is based on the sales of a person’s recruits or “downlines.”

“Ang kikitain mo dapat sa benta nila. Meron akong recruit nagbenta siya, may kita ako roon tapos ‘yung recruit ko meron din siyang na-recruit at nakabenda rin siya ng product pwede rin akong may commission doon but the premise is always based with product sales and not just mere recruitment,” he said.

(You will earn based on your recruits’ sales. For example, if I have a recruit and he/she sells products, I will earn from there. If my recruits also have recruits and they have sold products, I can have a commission but the premise is always based on product sales and not just mere recruitment.)

Spotting a pyramid scheme

Sarmiento said that it is a major "red flag" if a company asks for exorbitant registration fees. If that is the case then it is most probably a pyramid scheme.

“Sa mga lehitimong mga kumpanya talagang napakaliit lang ng registration fee” (In legitimate companies, the registration fee is only a fraction), he said.

“It can be as low as a few hundred pesos to cover brochures, materials so it’s very small and not thousands of pesos. I heard there are registration fees as high as P5,000, P15,000, P20,000,” he said in a mix of English and Filipino.

DSAP's Sarmiento said that if the registration fee is an unreasonable amount, an investor should doubt it “dahil ang pakay ng legitimate multi-level marketing ay mahikayat ‘yung mga taong sumali kaya maliit lang kung minsan libre pa eh para mag-join."

(Because the intention of legitimate multi-level marketing is to encourage participation that’s why the registration fee is a small amount, in other cases it’s free to join.)

He also said that if the value of the products being offered do not match it’s fair market value or if it is “overpriced”, then investors should also doubt the scheme.

“If it’s not in fair market value, what they’re after is only the registration fee,” Sarmiento said.

“What are the characteristics of pyramiding companies? Most of the time the goods are overpriced and the registration fee is exorbitant. Payment of commissions based on recruitment is not allowed, commissions should always be based on sales not recruitment,” he said.

Sarmiento also said that if the multi-level marketing company asks an investor to buy multiple “positions” to maximize his/her earnings, it is a red flag.

“Selling of multiple positions that’s a red flag, it’s pyramiding because you are not selling products anymore but selling positions,” he said.

DSAP is the organization of legitimate direct selling and network marketing companies in the Philippines and is affiliated with the World Federation of Direct Selling Associations based in Washington D.C., according to Sarmiento.

“Direct selling and network marketing is legitimate. Pyramiding is illegal,” he said. —LBG, GMA News