Can I get my money back from a multi-level marketing or pyramid scheme?
Refunds from MLM schemes are rarely given voluntarily, but many companies have buy-back policies under FTC guidelines. Pyramid scheme victims may receive restitution in regulatory enforcement actions.
Last reviewed: 10 June 2026
Explanation
Multi-level marketing (MLM) and pyramid scheme losses take several forms: money paid for starter kits or inventory that cannot be sold, ongoing purchases required to maintain distributor status, and recruitment fees. True pyramid schemes — where income depends primarily on recruitment rather than product sales — are illegal under the FTC Act.
Many states and the FTC require MLM companies to have a legitimate buy-back policy allowing distributors to return unsold inventory for at least 90% of purchase price. If the company you joined has such a policy (check the distributor agreement), exercise it immediately and in writing. Keep copies of all communications. If the company refuses to honor their stated policy, this is a violation you can report.
Report to the FTC at ftc.gov/mlm and your state attorney general. The FTC has brought enforcement actions against pyramid scheme operators and, when successful, has distributed refunds to victims. These proceedings take years and payments are often cents on the dollar, but they do occur. State AGs have also successfully pursued MLM fraud cases.
Document your total losses: startup costs, inventory purchases, training fees, events, and ongoing product requirements. This records your actual investment and supports any regulatory case. If you were recruited with false income claims, those claims are central to any fraud case — save any recorded webinars, presentations, or earnings disclosure documents you were shown.
Common red flags
- Income primarily comes from recruiting new members, not selling products
- Required to purchase inventory or a starter kit to participate
- Earnings disclosure shows the vast majority of participants earn little or nothing
- Events, training, and tools are sold at additional cost within the organization
- High-pressure recruitment to expand your 'downline' before you earn commissions
- Told to recruit friends and family as a 'business opportunity'
What to do now
- Request a buy-back of unsold inventory in writing using the company's policy
- Document all payments made including kits, events, and product purchases
- Report to the FTC at ReportFraud.ftc.gov
- File with your state attorney general's consumer protection division
- Check for any ongoing class-action lawsuits against the company
Frequently asked questions
What is the difference between an MLM and a pyramid scheme?
A legitimate MLM derives most revenue from actual product sales to end consumers. A pyramid scheme derives most revenue from recruitment fees and requires new participants to keep buying in. The FTC evaluates whether income depends primarily on recruitment — if so, it is likely an illegal pyramid scheme.
Can I get a tax deduction for MLM losses?
Losses from a business that never made a profit can sometimes be deducted if the IRS considers the activity a legitimate business. Consult a tax professional. The IRS 'hobby loss' rules may limit deductions if the activity never earned profit in multiple years.