Lawyer Tania Chin, a partner at Lighthouse Law, explains that a legitimate multi‑level marketing (MLM) business lets independent distributors earn money from direct product sales and from commissions on sales made by people they recruit. By contrast, the U.S. Securities and Exchange Commission describes a pyramid scheme as a model where participants earn money only by recruiting new members.

In Singapore, promoting or taking part in an illegal MLM scheme is a criminal offence that can lead to up to five years in jail and a fine of up to S$200,000. The law, however, carves out exceptions for certain arrangements such as insurance agencies and master franchises, Ms Chin said. Lawyer Andy Yeo, managing director of his own firm, added that a scheme must apply for official scrutiny and approval to be excluded from the prohibition.

Globally, MLM programmes are considered legal when most of the commissions come from genuine product sales rather than from recruitment fees or mandatory purchases, Ms Chin noted.

Several warning signs can help you spot a scam. Ms Chin warns that participants may feel pressured to buy large monthly product quotas to keep an ‘active tier’ status, which can leave them with unsellable stock. She also mentions ‘social capital bankruptcy’ when people are urged to recruit friends and family, straining personal relationships. Andy Yeo points out that promises of “incredible” returns are a classic red flag, and Ms Chin asks prospective members to consider whether they could earn a realistic income solely by selling the product without recruiting anyone.

Before joining, you can run three basic checks. First, look up the company on the Direct Selling Association of Singapore’s member list; if it is not registered, it may be operating illegally, Ms Chin said. Second, compare the business against the Monetary Authority of Singapore’s Investor Alert List. Third, map out how money moves within the scheme and verify that a genuine product exists, as Andy Yeo advises.