Here are parameters posted by
the FTC (Federal Trade Commission):
"Multilevel marketing plans,
also known as "network" or
"matrix" marketing, are a way of selling
goods or services through distributors. These plans
typically promise that if you sign up as a
distributor, you will receive commissions -- for both
your sales of the plan's goods or services and those
of other people you recruit to join the distributors.
Multilevel marketing plans usually promise to pay
commissions through two or more levels of recruits,
known as the distributor's "downline."
If a plan offers to pay commissions
for recruiting new distributors, watch out! Most
states outlaw this practice, which is known as
"pyramiding." State laws against pyramiding
say that a multilevel marketing plan should only pay
commissions for retail sales of goods or services,
not for recruiting new distributors.
Why is pyramiding prohibited?
Because plans that pay commissions for recruiting new
distributors inevitably collapse when no new
distributors can be recruited. And when a plan
collapses, most people -- except perhaps those at the
very top of the pyramid -- lose their money."