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."

Herbalife's stock is down by almost half from a year ago. It fell again just in the last few days after The New York Post reported Herbalife is the subject of a law enforcement investigation. (The company has vigorously denied that allegation.)

How will this all play out? Who knows. There are only allegations at this point. So there's a lot of smoke, but it's very different than being found in violation of the law. Clearly, though, the company is strongly on the defensive.

So is Herbalife a pyramid, is it a Ponzi? In the absence of a legal finding, follow the test I lay out below.

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.