A popular weight loss program is treading the fine line between multi-level marketing (OK) and a pyramid scheme (not OK)! Do you know the difference?

Herbalife is a company I've long taken calls about dating back to the 1980s. They sell vitamins, dietary supplements, skin and hair care, protein drinks and so on. Estimates suggest they have nearly $3.5 billion in sales.

But they've come under a cloud of doubt with allegations their products are just a front for a Ponzi scheme.

"Money from the millions of low- and middle-income people at the bottom of the pyramid is being transferred to the tiny fraction of distributors at the top of the pyramid," Wall Street power player William A. Ackman was quoted saying in The New York Times. "It's Robin Hood in reverse."

Now there are investigations at all levels of government to determine if the company is a pyramid scheme or not. The courts will ultimately have to decide that. But as for you, I want to suggest a simple test you can do on the Herbalife business model or any other:

If the big push is about recruiting other people into an organization, if that's where all the money is made, then it will tend toward being a pyramid.

On the other hand, if the real money is made selling products or services to those not involved in the organization, then it is likely a legitimate multi-level marketing organization.

That's it. It really is that simple!

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Image of Clark Howard About the author: Clark Howard

Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. View More Articles

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