DSAP: Understanding pyramid scams in the Philippines

Admin   |   17 April, 2015   |   976   |   3980

About 4 million Filipinos are in direct selling. They have dreamt of being entrepreneurs but do not have the capital. Some have found financial and personal freedom, while others have become victims of pyramiding scams.

The Direct Selling Association of the Philippines (DSAP) shares answers to frequently asked questions about pyramiding companies and those that are legitimate and with sustainable compensation plans.

Question: Using layman’s terms, what is pyramiding and what’s the main difference between legitimate multilevel marketing (MLM) and pyramiding?

Max VP for Asia Joey Sarmiento: Network marketing, or MLM, is a legitimate mode of business wherein products are sold via person-to-person selling instead of the traditional way of selling from a fixed retail location. The objective is to sell products to the end-consumers.

The difference between MLM and direct selling is in the commission system, wherein participants in MLM generally benefit from the sales made by people under their line of sponsorship even if they are several levels deep (e.g., an independent distributor in an MLM earns commissions not only on his/her personal product sales, and not only on the sales of a person personally recruited by him/her, but also on the sales of persons recruited by his/her personal recruits).

Pyramiding on the other hand is generally characterized by people earning primarily from the act of recruiting other people who pay significant registration fees to join the pyramid scheme.

The people who sign up and make the investment in the form of registration fees then try to recoup their investment by recruiting other people into the scheme by enticing them to make similar investments.

Even if the registration fees include products, the total amount of payment is deemed a registration fee or investment as people pay the sum to join the plan rather than to sell the products to ultimate consumers.

Pyramiding is illegal because it is a money game. Profits are derived primarily from participants’ entry fees, and the income is dependent on the participants slot or position within the organization rather than the ability to sell the products or services.

DSAP, through its membership and compliance committees, makes sure that all its members comply with the guidelines of the Philippine government as embodied in the Consumer Act of the Philippines, the DTI Implementing Guidelines against pyramiding (DTI Administrative order no. 8 Series 2002), and the SEC guidelines against unregistered investments.

For the official list of DSAP member companies, please visit the DSAP website at www.dsap.ph.

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