Tuesday, July 2, 2024

What Are The Differences Between A Legitimate Multi-Level Marketing Company And A Pyramid Scheme?

In recent years many companies have successfully utilized so-called "multi-level marketing" practices. It is important, therefore, to address the differences between a pyramid scheme and a legitimate multi-level marketing company. Initially, it should be noted that pyramid schemes always fail, while multi-level marketing companies sometimes survive.  

What Is A Pyramid Scheme?

A pyramid scheme is a fraudulent system of making money based on recruiting an ever-increasing number of "investors." The initial promoters recruit investors, who in turn recruit more investors, and so on. The scheme is called a "pyramid" because at each level, the number of investors increases. The small group of initial promotors at the top require a large base of later investors to support the scheme by providing profits to the earlier investors.

Pyramid schemes are illegal in New York State, as well as in many other states. Article 23A of the General Business Law of the State of New York §359-fff sets forth the criminality of initiating and participating in pyramid schemes (also known as chain distributor schemes).

Pyramid schemes may or may not involve the sale of products or distributorships. The trend is to involve sales of products or distributorships in an attempt to show legitimacy. This is done solely to sidestep the regulatory agencies, as most state laws prohibit marketing practices where the potential for profit stems primarily from recruiting other investors and not from the sale of products. The bottom line, however, is that in all pyramid schemes, the selling of a product itself is much less important than the recruiting of new investors.

What Is Multi-Level Marketing?

Multi-level marketing is a method of selling products directly to consumers without intermediary retail stores. Products are sold through a network of distributors or salespersons set up to resemble a pyramid: each distributor recruits and trains additional distributors and will earn commissions on their sales, as well as on the sales he or she makes. Because of their pyramidal structure, multi-level marketing companies can sometimes be pyramid schemes.

What Are The Differences Between A Legitimate Multi-Level Marketing Company And A Pyramid Scheme?

A legitimate multi-level marketing company emphasizes reliable products or services. A pyramid scheme uses products or services to disguise its quest for collecting money from the investors on the bottom levels to pay other investors further up the pyramid.

In a typical pyramid scheme, new investors must pay a fee for the right to sell the products or services as well as for the right to recruit others into the pyramid for rewards unrelated to product sales or services. Very often the products or services the victim must buy are unsalable, and the pyramid's promoters refuse to repurchase them. On the other hand, legitimate multi-level marketing companies will buy back unsold merchandise, although often at a discount from the original price.

Success in multi-level marketing is based on two factors: product and service quality, and the hard work involved in being able to sell the products or services. Recruitment of new investors is secondary.

Why Do Pyramid Schemes Always Fail? And Why Do Legitimate Multi-Level Companies Sometimes Survive?

Pyramid schemes are doomed to fail because their success depends on the ability to recruit more and more investors. Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. The only people who make money are those few who are on the top of the pyramid.

Legitimate multi-level marketing companies, on the other hand, can be around for a long time. Although the recruiting of additional investors is an essential part of the marketing practice, since legitimate multi-level marketing companies involve solid products or services, participants in these companies are not subject to huge losses.

Why Do People Invest In Pyramid Schemes?

If all pyramid schemes fail, why would anyone invest in them? There are three basic categories of people who invest in pyramid schemes: those who participate out of greed; those who are misled into thinking that they are joining an "investment club" or a "gift program"; and those who believe that the products or services are legitimate.

The people who participate in pyramid schemes out of greed often know that they are illegal. They nevertheless participate, hoping that the scams will last long enough for them to make a profit. However, the end result of a pyramid scheme is inevitable. At best, a few people, usually the promotors, walk away with a lot of money, leaving the bulk of the investors to lose all of the money they put into the scheme. In fact, the only way anyone could make money from pyramid schemes, is if other people are defrauded into giving money upon the promise that they in turn will be repaid

Pyramid promoters often target closely knit groups such as religious or social organizations, sports teams, and college students to increase pressure to participate. They give some pyramid schemes attractive names such as "investment clubs" or "gift programs." These clubs or programs are usually presented to these investors with assurances that they are perfectly legal, approved by the Internal Revenue Service or a Certified Public Accountant. Some even expressly state that they are not a pyramid scheme.

Participants of these clubs or programs are required to characterize their investments as "unconditional gifts" by signing waivers. The truth of the matter, however, is that by making these "gifts," everyone expects those further down on the pyramid to do the same. The intention is not to make an unconditional gift. Consequently, not only are these people involved in illegal pyramid schemes, they may also be violating tax laws.

Those investors who actually believe that the products or services which the promoters sold to them are legitimate, inevitably realize that they have been scammed. It is only when these products and services are unsaleable, and the promoters refuse to repurchase them, that they finally become aware that they have participated in an illegal pyramid scheme.

How Can You Avoid Being Defrauded?

The easiest way to avoid being defrauded is obviously not to participate in any promotion that appears to be a pyramid scheme. The following are some additional tips to help you steer clear of pyramid schemes:

Gather all information regarding the company, its officers, and its products or services. Get written copies of the company's marketing plan, sales literature, contracts, etc. Avoid promoters who fail to explain their plans clearly and in detail. In particular, read the company's prospectus or other written material. (A prospectus is a legal document that gives prospective investors information about a company.) If you don't understand it, get someone independent of the company to explain it to you.

Find out if there is a demand for the product or service. Is there a similar product or service on the market? If so, how well does it sell? If the promoters seem to be making most of their money by selling distributorships or large start-up inventories to new recruits, stay away.

Ask if you must buy a product to become a distributor. Find out if the company will buy back your inventory --you could get stuck with unsold products. Legitimate companies will buy back inventory for at least 80 to 90 percent of what you paid. Get all promises in writing.

Beware if the start-up cost is substantial. Some pyramid schemes pressure you to pay a large amount to become a "distributor." What are you getting for your money? Beware of promises of quick, easy and unreasonably high profits.

If the distributorship is providing a product for use to make a final product, make sure that whatever you provide reaches the final manufacturer. If you can, call or visit the manufacturer and ask for a list of its customers. Call the customers and ask if they are satisfied with the product.

Resist the temptation to invest just because the people selling you the program are friends or are part of your religious or social organization. They may have been misled into believing that they could make large amounts of money in a short time.

Check out any opportunity with the proper agencies.

The New York State Attorney General's Office, Investor Protection and Securities, 28 Liberty Street, New York, NY 10005

The Federal Trade Commission | Northeast Region | 1 Bowling Green, Suite 318 | New York, NY 10004 | Consumer Response Center: 1-877-382-4357

The Better Business Bureau, 257 Park Ave. South, New York, NY 10010.

SOURCE: https://ag.ny.gov/

DXN was founded by Datuk Lim Siow Jin, a graduate from the prestigious Indian Institute of Technology. Datuk Lim started the business in quest of the benefits of mushroom on human health. His deep interest and endless effort drove him to utilize the fullest potential of Ganoderma or Lingzhi, which is well-known as the King of Herbs, for human health and wealth, with the establishment of DXN in 1993.

The core business activities of DXN include cultivation, manufacturing and marketing of the health food supplements. Based in Malaysia with worldwide operations, the company is well-known for its Ganoderma business. Its product lines include dietary supplements, food and beverages, personal care products, skin care and cosmetics, household products and water treatment system. Since its inception in 1993, DXN has upheld its concept of 'One Dragon One World One Market and One Mind'. With this powerful concept, DXN has sailed through continuous growth over the years. On 30 September 2003, DXN Holdings Bhd was listed on the Main Board of Bursa Malaysia. DXN was delisted on 27 December 2011 due to a take-over offer by the founder.

DXN Holdings Bhd is the investment holdings and management company of DXN Group. DXN's high regard for quality earned the company many outstanding citations and recognitions from various health and business organizations. Along with the solid foundation and sustainable development, DXN has rapidly diversified into other business activities, which include information technology, etc. In its core business of direct selling, the rapid global expansion of DXN is recognized internationally by its vast growth of members worldwide and its amplification of footprint in key strategic locations. With over 16.4 million registered distributors worldwide, DXN is solidifying its position as one of the world leader in Ganoderma products.




DXN Signs Underwriting Agreement With Major Banks


DXN Holdings Bhd (DXN) has signed an underwriting agreement with Maybank Investment Bank Bhd, CIMB Investment Bank Bhd and RHB Investment Bank Bhd in conjunction with its proposed initial public offering (IPO) on the Main Market of Bursa Malaysia Securities Bhd.

DXN and its subsidiaries (DXN Group) are principally involved in the sales of health-oriented and wellness consumer products. It operates a vertically integrated supply chain with in-house research, cultivation and manufacturing functions across Malaysia, China, India, Indonesia and Mexico, and has over 300 stock keeping units of health-oriented and wellness consumer products that are manufactured in-house and distributed through its direct selling network or sales branches.

In conjunction with DXN’s IPO, Maybank Investment Bank Bhd, CIMB Investment Bank Bhd and RHB Investment Bank Bhd has agreed to underwrite the retail offering of 160,000,000 ordinary shares in DXN (Retail IPO Shares), representing approximately 3.2% of the enlarged issued ordinary shares in DXN. The Retail IPO Shares are to be offered in the following manner:

1/ 60,000,000 Retail IPO Shares are reserved for the directors and eligible employees of the DXN Group, and persons who have contributed to the success of the DXN Group; and
2/ 100,000,000 Retail IPO Shares are reserved for application by the Malaysian public via balloting.

DXN Non-Independent Executive Chairman and Founder Datuk Lim Siow Jin said, “The signing of the underwriting agreement marks a significant milestone for us ahead of our proposed listing on the Main Market of Bursa Malaysia Securities Bhd. Since we began operations, we have expanded our presence from being solely in the Malaysian market into international markets. 

We have a vast distribution footprint spanning across various global regions of Europe, Latin America, North America, Central Asia, South Asia, Southeast Asia, Middle East, Africa and Oceania and we are eyeing our next stage of growth as we aim to expand into new markets.”




DXN Unveils IPO Prospectus, Expects Market Cap Of RM3.8 Billion Post Listing


The Public Listing of DXN

DXN strives to ensure continuous growth and prosperity for its members by constantly developing. This spirit enabled DXN to be successfully relisted on Bursa Malaysia's main market on 19th May 2023, providing beneficial opportunities not only for DXN but also for all its members.

DXN IPO Prospectus Launch

The DXN IPO (Initial Public Offering) Prospectus Launch event was held on 28th April 2023 at DXN Cyberville. The event was attended by DXN's key management, directors, and staff, DXN Crown Ambassadors and DXN members from Malaysia and Overseas, officials and representatives from various banking and financial institutions, Bursa Malaysia officials, as well as members of the press.

DXN Unveils IPO Prospectus, Expects Market Cap Of RM3.8 Billion Post Listing

Main Market bound DXN Holdings Bhd which is involved in sales of health-oriented and wellness consumer products unveiled its initial public offering prospectus, which is set for 19 May 2023.

The IPO exercise involves an offering of up to 932,675,000 ordinary shares in DXN comprising an offer for sale of up to 772,675,000 existing Shares and a public issue of 160,000,000 new Shares. The maximum IPO price is RM0.76 per Share with the final IPO price to be determined via a book-building exercise.

The group will have an institutional offering of up to 772,675,000 Offer Shares, representing up to 15.5% of the enlarged issued Shares and up to 149,550,000 Offer Shares to Malaysian and foreign institutional and selected investors. While the retail offering is at 160,000,000 Issue Shares, representing 3.2% of the enlarged issued Shares.

The public issue is expected to raise approximately RM121.6 million of which the company has earmarked 65.8% or RM80 million of the public issue proceeds for the repayment of bank borrowings. Meanwhile, up to 14.4% or up to RM17.5 million has been budgeted for working capital requirements, mainly for the purchase of primary raw materials used to produce finished goods and primary packaging materials while the remaining public issue proceeds will be utilised to defray the fees and expenses relating to the IPO and listing.

Based on the enlarged issued Shares of 4,985,000,000 post-IPO and the retail price of RM0.76 per Share, DXN’s expected market capitalisation works out to be approximately RM3.8 billion. DXN also intends to declare a yearly dividend with a target payout ratio of between 30%-50% of its profit attributable to its owners on a consolidated basis.

DXN’s Non-Independent Executive Chairman and Founder, Datuk Lim Siow Jin said, “I am incredibly excited to launch our prospectus today. Over the years, we have invested into 2 research facilities, 6 cultivation facilities and 10 manufacturing facilities which have allowed us to control the supply chain and be innovative in expanding our product offerings to meet constantly changing customer needs. Looking ahead, we have another cultivation facility and 2 manufacturing facilities in the pipeline. Overall, DXN is poised for its next stage of growth through listing on the Main Market of Bursa Malaysia Securities Berhad. With over 3.6 million active members and revenue of over RM1.2 billion, we aim to continue our growth trajectory by expanding our presence in existing and new markets.”

Maybank Investment Bank Berhad is the Principal Adviser, Joint Global Coordinator, Joint Bookrunner, Joint Managing Underwriter and Joint Underwriter for the IPO. CIMB Investment Bank Berhad is the Joint Global Coordinator, Joint Bookrunner, Joint Managing Underwriter and Joint Underwriter for the IPO. CLSA Limited and CLSA Securities Malaysia Sdn Bhd are the Joint Global Coordinators and Joint Bookrunners for the IPO whereas RHB Investment Bank Berhad is the Joint Bookrunner and Joint Underwriter for the IPO.




Congratulations to All 55 New DXN Distributors for the Month of JUNE 2024


Congratulations to All 55 New DXN Distributors from JUNE 1 - 30, 2024.

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