MLM multi-level ("Pyramid") marketing

Question

Is it forbidden halachically to be involved in multi-level ("Pyramid") marketing? Is it similar to interest, since the profit is not earned through actual work or development? Is this embezzlement?

Answer

Involvement in multi-level marketing includes a number of issurim (halachic prohibitions):

1. Gnayvat da'at – the issur of presenting investment in the "Pyramid (or Ponzi) scheme" as worthwhile when in fact it is not so, like any "Pyramid scheme" in the world. (Shulchan Aruch, Choshen Mishpat 228, 6,9)
2. Lifnei Ivair - Do not put a stumbling block before the blind – whoever gets another person to join the pyramid scheme transgresses the issur of putting a stumbling block before the blind, because he is causing him to transgress too and also because he gives him poor advice, which leads to a loss of money.(Vayikra 19, 14, and in Sifra, Parashat Kedoshim 2, 14, on the issue of giving bad counsel. This issur is brought in the Sefer Mitzvot HaRambam Lo Ta'aseh 299 and in many other sources).
3. If he does not work in any other field, he is not involved in yeshuvo shel olam (meaning: dealing with practical issues, not "Luftgeschaeft), (Shulchan Aruch, Choshen Mishpat, 370, 3). 

From a monetary point of view, since he who joins is unaware of the poor chances, he is permitted to cancel the deal and demand that his money be returned (Shulchan Aruch, Choshen Mishpat, 232,1).

These issurim relate to all kinds of pyramids. In relation to the issur of interest and other possible issurim, it depends on the structure or particular content of the pyramid, and each case has to be judged individually.

It is important to note that there exists a commercial structure similar to that of the pyramid (known in Hebrew as sharash – shivuk rishti) called "network Marketing", which operates like a pyramid with a product. This too is forbidden, exactly like the pyramid (although there is a halachically legitimate kind of network marketing in which the network relates to marketing a product and not to the distribution of profits, and this has to be checked carefully in each individual case). 

There is an additional issur in network marketing:

4. Price-gouging - since their products are not sold at their genuine price, and since the fee for membership in the network is unjustified ((Shulchan Aruch, 227, 6, response HaRo"sh13, 20). 

(This answer was written based on an article encompassing all the issurim involved in pyramids and network marketing. The article is due, b"h, to be published in the near future in Book 3 of Mishpetei Eretz).