"A friend brought up a crypto investment opportunity."
"Someone I met on social media keeps telling me about a token that's guaranteed to make money."
Invitations like these may actually be multi-level marketing (MLM) or a network-marketing-style scam.
MLM-style schemes involving crypto assets (also known as virtual currencies) often spread through a referral-reward structure, in which the person doing the recruiting earns a commission — so it isn't unusual for the person pressuring you to join to be a close friend or acquaintance. What makes this especially tricky is that the recruiting itself isn't necessarily illegal; these schemes often present themselves as legitimate businesses, making them hard to distinguish from outright fraud.
In 2023, nine people connected to a multi-level marketing scheme built around a crypto asset promoted under the name "MarketPeak" were arrested on suspicion of violating Japan's Act on Specified Commercial Transactions. According to reporting by Kansai Television (KTV), a 21-year-old university student was recruited by a classmate and told that "if you recruit at least four people, you'll recoup what you paid" — and ended up paying roughly ¥1.4 million (about $9,300 at a reference rate of ¥150 to the US dollar).
To help you avoid becoming a victim, this article breaks down how crypto MLM schemes work, common recruitment patterns, and how to decline gracefully — as well as what to do about Japan's cooling-off system if you've already signed a contract. Whether you're still deciding whether to accept an invitation or you've already committed, we hope this gives you what you need to decide on your next step.
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What is crypto MLM / multi-level marketing?
MLM stands for "multi-level marketing." It's a sales model in which purchasers of a product or service recruit new members themselves and earn rewards based on their recruiting results. Because members recruit more members, the organization tends to expand in a pyramid-like structure.
In Japan, the same model is usually called maruchi shōhō (literally "multi-level selling") or nettowāku bijinesu ("network business"), and both terms point to essentially the same thing as MLM. Maruchi shōhō is the wording favored by consumers and the media, while nettowāku bijinesu is preferred within the industry — but legally, both fall under what Japan's Act on Specified Commercial Transactions defines as rensa hanbai torihiki, a category that appears in English translations of the Act as "Multilevel Marketing Transactions" and that this article refers to as "chain-referral transactions."
A transaction involving goods (or rights) or services in which an organization is expanded in a chain-like manner by recruiting individuals as sales representatives, who in turn recruit further sales representatives.
In the crypto space, this structure is increasingly combined with proprietary tokens or investment packages. In effect, "investing in crypto assets" itself becomes the product, replacing the health foods or cosmetics of traditional MLM schemes.
Take the case mentioned at the top of this article: the reporting describes a university student who was told by a classmate that "the price of the crypto asset will go up" and that "if you refer four people, you'll recoup what you paid," and who ended up paying roughly ¥1.4 million. The classmate who did the recruiting had also been recruited by another friend — illustrating how participants chain together through close personal relationships.
How is this different from a pyramid scheme ("nezumi-kō")?
MLM is often confused with a "nezumi-kō," or pyramid scheme. Both look similar on the surface — people recruiting people in an ever-expanding, tiered structure — but legally, they are treated as entirely different things.
A pyramid scheme is legally defined in Japan as a "mugen rensa-kō," or endless chain scheme (link in Japanese). Its defining feature is that there is no real underlying product or service being sold — it consists purely of money changing hands, with contributions from later participants being paid out to earlier ones. Because this structure inevitably collapses unless the number of participants keeps growing without limit, Japan's Mugen Rensa-kō no Bōshi ni Kansuru Hōritsu (the Act on Prevention of Pyramid Schemes) uniformly prohibits not only establishing or operating such schemes, but even recruiting people into them.
No person shall establish or operate an endless chain scheme, recruit or solicit participation in an endless chain scheme, or engage in acts that facilitate such conduct.
Source: Mugen Rensa-kō no Bōshi ni Kansuru Hōritsu (Act on Prevention of Pyramid Schemes)
MLM, by contrast, involves an actual product or service, and is permitted as a form of transaction as long as it complies with the Act on Specified Commercial Transactions. Summarized:
Type | Underlying product/service | Legal treatment |
|---|---|---|
MLM | Present | Permitted, regulated as a chain-referral transaction |
Pyramid scheme (nezumi-kō) | Absent | Fully prohibited as an endless chain scheme |
In other words, the dividing line comes down to "whether there's a real underlying product" and "where the reward money actually comes from." That said, this distinction is purely a matter of legal classification. Even when a scheme formally involves a product such as a token, if that token has no real value and the rewards are, in substance, funded solely by new participants' payments, the structure can end up functionally indistinguishable from a pyramid scheme.
With crypto assets — where the value of the "product" is hard to verify from the outside — this line tends to blur especially easily, which is something to keep in mind.
Where is the line between "legal," "illegal," and "fraud"?
It may be surprising, but the MLM (chain-referral transaction) structure itself is not illegal. As long as it's operated in compliance with the rules set out in the Act on Specified Commercial Transactions, it is a legally recognized form of business. In fact, some companies dealing in everyday goods or health foods have operated under this model for years.
At the same time, a detailed set of rules must be followed for an MLM operation to be considered legitimate. The main ones include:
- Disclosing the business's name and the purpose of the solicitation before recruiting begins
- A prohibition on making claims that differ from the facts, such as "you're guaranteed to profit"
- Providing a summary document and a contract document at the time of signing
- Honoring cancellation requests (cooling-off) for 20 days from receipt of the contract document
A case where someone is invited out for a meal, only to find on arrival that it's actually an investment pitch, can run afoul of the Act on Specified Commercial Transactions as a solicitation that concealed its true purpose. Even when the underlying structure is legal, the way people are recruited into it is often what crosses the line — and this pattern is said to be common.
Beyond that lies the territory of outright "fraud." If there is no real underlying business generating the returns, and money from new participants is simply being funneled to pay earlier participants, that is the classic structure of a Ponzi scheme — a form of investment fraud that can trigger fraud charges under Japan's Penal Code, or violations of the Shusshi-hō (the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates). In addition, operating a crypto asset exchange or brokerage business in Japan requires registration as a crypto asset exchange service provider under the Payment Services Act (PSA), and the Financial Services Agency (FSA) publishes warnings about unregistered operators.
To summarize, the line is drawn in stages: operate according to the rules, and it's legal; violate rules around solicitation methods or document disclosure, and it becomes a violation of the Act on Specified Commercial Transactions; and if there's no real underlying business at all, it moves into the territory of fraud or an illegal pyramid scheme. That said, because it's genuinely difficult to tell from the outside whether a business actually has real substance, "it looks like a legitimate structure, so it must be safe" is not a conclusion you should rely on.
Why do people keep pushing crypto recruitment so persistently?
Among those involved in crypto MLM schemes, some repeatedly approach even family members and close friends, refusing to back down even after being turned away. This kind of persistence can't be explained by personality alone — it's more likely driven by a "mechanism" that actively encourages this recruiting behavior.
And what kind of outcome does that mechanism tend to lead participants toward? Understanding this can help you stay level-headed when you're approached. Here, we'll walk through the recruiter's motivations and the structural weaknesses built into the system, one at a time.
Why friends and acquaintances recruit so enthusiastically
Many crypto MLM schemes include a "referral reward" mechanism, in which the person who introduced a new participant earns a commission. Under this design, when the person you recruited joins or purchases a token, a portion of that goes to you as the referrer. Some schemes go further, paying rewards up the chain to higher-level referrers whenever the person they recruited goes on to recruit someone else.
Under this kind of structure, recruiting someone becomes both "something good for them" and, simultaneously, "income for you." The person doing the recruiting often ends up in a mixed state of genuine goodwill — believing they're sharing something valuable — combined with anticipation of their own reward. Even when someone sincerely believes they're just recommending something good, it's hard to deny that the reward structure is what's fueling their enthusiasm.
This is exactly why recruitment from people close to you deserves extra caution. Whether the person is trustworthy and whether the scheme being recommended is sound are two separate questions that need to be considered independently.
Why these schemes eventually hit a wall
Referral rewards are a powerful motivator for the person doing the recruiting. But when you look at where that reward money actually comes from, the structural limits of the system become clear.
In many crypto MLM schemes, it's been pointed out that the bulk of the rewards paid to participants come not from the profits of an actual business, but from the payments made by newly arriving participants — in other words, a Ponzi-scheme-like structure. Under this model, rewards can keep flowing as long as new participants keep joining, but there's a limit to how many people can realistically be recruited. Once the pace of new participants slows, the funding source dries up, and reward payments eventually stall.
In other words, the whole system is built on the assumption that it can keep recruiting people indefinitely. Because that assumption is unrealistic, it's likely to hit a wall eventually — sooner for some schemes, later for others. What's more, the later someone joins, the less chance they have to recoup their money, and the more likely they are to end up at a loss. It's no coincidence that the pitch "the earlier you join, the better" is so commonly used — it's directly tied to this underlying structure.
Common crypto MLM recruitment patterns and warning phrases
MLM schemes built around crypto don't always take the obvious form of "a suspicious stranger approaching you on the street." More often, the contact happens naturally in everyday life, and before you know it, the conversation has already progressed. If you know the typical tactics and stock phrases in advance, you'll have a better chance of stepping back and thinking, "this might be an MLM pattern," the moment you're approached.
Here, we'll cover both where you're likely to be approached (the "contact points") and the kinds of language used to lower your guard (the "catchphrases").
MLM recruitment tactics by contact point
Crypto MLM recruitment tends to shift its approach slightly depending on the contact point. Because the entry point is tailored to the target, even people who think "this won't happen to me" can end up drawn in if they let their guard down.
Social media | Contact often starts with an account posting about investing or side income. A typical flow involves showing glamorous lifestyle photos or screenshots supposedly showing profits, then reaching out individually via direct message. Some also start by inviting targets into a free online community or group chat, gradually building interest from there. |
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Dating apps | Approaches via dating apps overlap with the so-called "romance investment scam," where the perpetrator builds trust under the guise of romance before raising the investment pitch. A common pattern is that, after exchanging messages for a while and growing close, the crypto pitch comes up in a framing like "let's do this together for our future." Because emotions are involved, it can become harder to think clearly, which calls for extra caution. |
Seminars and networking events | Through seminars and networking events, people are invited to gatherings or an investment course billed as an "investment study session" or a "gathering of business owners," where the energy of the room and testimonials from supposedly successful participants can lead people to believe the pitch and end up being deceived. |
Acquaintances and friends | When the contact point is an acquaintance or friend, the person often has no ill intent and genuinely believes it's a "good opportunity" — which is exactly what makes it hard to say no. |
Regardless of the contact point, the underlying flow is the same: build trust first, then move toward a profitable-sounding pitch. Whichever entry point is used, it's worth pausing the moment money or a crypto asset purchase enters the conversation.
Watch out for "guaranteed profits," "AI grows it automatically," and "principal guaranteed"
Recruiters often use language specifically designed to lower your guard. When you hear the following kinds of phrases, it's worth pausing to verify the details carefully rather than taking them at face value.
"You're guaranteed to profit" "You definitely won't lose money" | There is no such thing as "guaranteed" in investing. For a crypto asset whose price fluctuates, it's natural to assume that no mechanism can promise a certain profit. A definitive claim of guaranteed profit is itself a red flag worth noticing. |
|---|---|
"AI grows your money automatically" "Managed through our proprietary system" | Explanations like "our cutting-edge AI trades 24/7 and automatically grows your assets" are usually impossible to verify in concrete terms. It's been pointed out that dressing things up with technical-sounding language can be a deliberate way to deflect questions about what's actually happening underneath. |
"Principal guaranteed" "Guaranteed monthly returns of X%" | Explanations that appear to guarantee a high rate of return call for particular caution. In Japan, soliciting funds while promising to guarantee the principal and pay out returns is strictly restricted by law, so a pitch like this can itself point to an underlying legal problem. |
"It'll multiply many times over once it lists" "Only now, only for you" | Language designed to create a sense of scarcity or time pressure is also common. The more a pitch tries to rush you, the more useful it is to pause and think it over before responding. |
On their own, these phrases can sometimes sound plausible. But when several of them show up together, it's safe to treat that as a sign of high risk. When you're unsure, it's best not to make a decision on the spot.
Past cases of problematic crypto MLM schemes
Among crypto-related MLM cases, one well-known example is "OneCoin," which started in Europe and spread worldwide. It grew by claiming that its proprietary crypto asset would rise sharply in value for those who invested, and by rewarding purchasers for recruiting new participants. However, it was pointed out that there was little actual trading activity backing up its stated price, prompting investigations by authorities in multiple countries, and its central figure became the subject of an international manhunt (source: United States Department of Justice).
"BitConnect," which combined an investment program that advertised high returns with referral rewards, is another example — it effectively collapsed around 2018 when its price crashed. U.S. securities regulators announced legal action, treating it as the sale of an unregistered security. It's a textbook case of the promise "just deposit it and it grows automatically" eventually falling apart (source: SEC.gov).
There have also been cases of wallet-based services that gathered members mainly across Asia being shut down by authorities. In each of these cases, observers have pointed out the same common threads: "the actual operations couldn't be verified from the outside," and "the model only worked as long as new members' money kept flowing in."
What to do if you've been recruited into — or already signed up for — a crypto MLM
Many people aren't sure what to do when they're invited into a crypto MLM scheme, or when they've already signed a contract or made a payment. When the person recruiting you is someone close to you, it can be hard to say no, and once you've signed, it's tempting to assume "it's already too late."
But there are options available whether you're still at the recruitment stage or have already signed. There are effective ways to decline, and for certain kinds of transactions, the law provides a way to undo the contract. Here, we'll walk through how to think about declining, the system available after signing, and where to turn when you don't want to handle this alone.
How to decline without damaging the relationship
Crypto recruitment is especially tricky to handle when the person doing the recruiting is a friend, acquaintance, or family member. The desire not to damage the relationship can make it difficult to refuse clearly, and you may end up continuing to listen even when you don't want to.
The first thing to keep in mind when declining is to make clear that you're not rejecting the person or the relationship itself — only that you're not interested in "that particular offer." Explaining your reasons in detail can actually give the other person an opening to argue back, so it helps to prepare a single, non-negotiable reason in advance — something like "I've made a policy of not investing" or "my family and I have a rule about this" — which tends to keep the conversation from dragging on.
Even if you're pressed for an answer on the spot, you don't have to give one. It's fine to say, "let me think it over and get back to you," and take time to calmly review the contract or explanatory materials. Being pushed for an immediate decision, or being contacted repeatedly after you've already declined, are themselves signs that call for extra caution. If the contact keeps coming, options include slowing down how quickly you respond and keeping a record of the communications.
How to use the cooling-off system, even after signing
Even if you've already signed a contract and made a payment, don't give up before checking whether Japan's cooling-off system applies.
A transaction like MLM — in which people are recruited into an organization through a product or service and offered rewards for referrals — can qualify as a "chain-referral transaction" under Japan's Act on Specified Commercial Transactions. If it does qualify, you can cancel the contract unconditionally, in writing or electronically, within 20 days of receiving the legally required document setting out the contract terms, counting the day of receipt as day one.
Even if a consumer (an individual without a storefront) has entered into a sales contract, if the consumer notifies the entity operating the chain-referral business of contract cancellation (cooling-off), in writing or by electronic record, within 20 days of receiving the legally required document (or, if the goods are delivered later, from the date of delivery), the consumer may cancel the contract.
The basic procedure is to notify the cancellation in a form that leaves documented evidence. Notification by email is now accepted in many cases, but it's safer to choose a method that preserves a record of both the content and the date sent, for proof purposes later. In addition, if the business made statements that differed from the facts, or failed to provide the required documents within the required period, there may be room to cancel the contract even after the 20-day period has passed.
That said, crypto-related solicitations come in many forms, and it isn't always easy to judge whether a given contract qualifies as a chain-referral transaction or is eligible for cooling-off. Rather than letting the deadline pass while trying to figure this out yourself, it's advisable to contact a consultation service early.
Consultation resources so you don't have to handle it alone
Anxiety over a recruitment attempt or a signed contract tends to lead to worse decisions the longer you carry it alone. Some people hesitate to seek help because they feel partly at fault, but public consultation services exist precisely to help you sort through the situation and figure out the next step together. The services described below are public consultation channels in Japan, and the phone numbers listed can be dialed only from within Japan.
For contract disputes in general, the Consumer Hotline "188" is the starting point. Calling 188 (no area code needed) connects you to your local consumer affairs center or an appropriate consultation service, where you can get concrete advice on whether cooling-off applies and how to proceed with it.
If you strongly suspect you've been defrauded of crypto assets, or you're facing intimidating recruitment tactics, contacting the police is an option. For emergencies, call 110; for other consultations, the Police Consultation Line "#9110" is available. If you have concerns about the legitimacy of a business claiming to handle crypto assets or investments, you can also report information to the FSA, which operates a consultation desk in Japan for users of financial services.
Whichever service you contact, keeping records of the recruitment communications, the contract and explanatory materials, and proof of any transfers will help you explain your situation accurately. If you're not sure where to turn, starting with 188 and letting them direct you to the right service is a perfectly reasonable first step.
Frequently asked questions about crypto MLM and multi-level marketing
When it comes to crypto MLM and multi-level marketing schemes, people commonly ask questions like "is this actually illegal?" and "can I get my money back?" Here are answers to some of the most common points of confusion.
Is crypto MLM illegal?
The MLM structure itself is not illegal, as long as it's operated in compliance with the rules of the Act on Specified Commercial Transactions. What becomes a problem is a pyramid-scheme-style structure with no underlying product, where new participants' contributions are simply funneled into payouts, or recruitment based on claims that differ from the facts, such as "you're guaranteed to profit."
Because crypto-based schemes involve tokens with investment-product-like characteristics, they may also run afoul of separate regulations, such as the Financial Instruments and Exchange Act (FIEA) or the Payment Services Act (PSA). Rather than "illegal because it's MLM," it's worth remembering that the line is drawn by the actual content and substance of the recruitment.
Are pyramid schemes (nezumi-kō) and MLM the same thing?
The two are often confused in everyday conversation, but they're treated as legally distinct. A pyramid scheme (nezumi-kō) involves no sale of goods and exists purely to distribute money, and it's prohibited outright. MLM, on the other hand, involves the distribution of actual goods or services and can be operated legally as long as the rules are followed.
That said, if the product involved has no real value and the substance of the scheme amounts to distributing contributed funds, it can be judged to be a pyramid scheme even if it's labeled MLM.
How is a Ponzi scheme different from MLM?
A Ponzi scheme refers to a fraudulent technique in which, despite there being no actual underlying operations, new investors' contributions are paid out as if they were returns, creating the illusion of profit. MLM, by contrast, is simply a sales model for distributing an actual product or service. The two concepts are distinct, but in crypto recruitment, it's common to see schemes that take the form of MLM while functioning, in substance, much like a Ponzi scheme.
Checking where the referral rewards and payouts actually come from is a useful clue for telling the two apart.
Is it fine to participate if the amount is small?
Regardless of the amount involved, any structure that relies on new participants' funds as the source of payouts carries the structural risk of eventually collapsing. Even a small amount can affect your relationships if you end up in the position of recruiting friends or acquaintances — something that's easy to overlook.
An entry point like "just to learn" or "just a little" can lead to additional contributions or active recruiting down the line. If you're considering participating, it's important to thoroughly check the structure, the actual business operations, and information about the operator.
Can I get back money I've already paid?
Chain-referral transactions come with a cooling-off system, and if you cancel within 20 days of receiving the legally required contract document, you can, in principle, cancel the contract and request a refund. Even after this period, options may remain: chain-referral transactions also carry a separate statutory right of mid-term termination (chūto kaiyaku), which lets a participant withdraw once the cooling-off window has closed, and where the business made statements that differed from the facts, there may be room to claim that the contract can be cancelled.
That said, actual recovery can be difficult in situations where you're unable to reach the other party or the business itself has collapsed. If you're unsure, it's advisable to contact the Consumer Hotline (188) or a similar resource as early as possible.
A family member or friend has gotten deeply involved in a crypto MLM — what should I do?
Flatly denying it can sometimes cause the person to shut down emotionally. Start by listening to what they have to say, then calmly review the contract documents and business details together, checking for claims like "guaranteed profit" or "principal guaranteed."
Because trying to resolve this alone often makes things harder, consulting a professional, such as a lawyer, can also be a worthwhile option depending on the situation.
Summary
Crypto MLM and multi-level marketing schemes are not automatically illegal simply by virtue of their structure. That said, in the crypto space, it's common for schemes that take a legally compliant form on paper to function, in substance, much like a Ponzi scheme — funneling new participants' money into payouts.
Two useful clues for telling the difference are "does the product have real value?" and "where does the reward money actually come from?" A structure funded by incoming participants' money will inevitably hit a wall once the pool of people willing to join runs dry, and it is structured so that the later someone joins, the more likely they are to end up at a loss.
Understanding that a friend or acquaintance's enthusiasm for recruiting you is often driven by this kind of referral-reward design can help you separate your trust in the person from your judgment about whether the scheme itself is sound.
With that in mind, treat phrases like "guaranteed profit," "principal guaranteed," "AI grows it automatically," or "only now, only for you" — especially when several appear together — as high-risk warning signs. Not deciding on the spot, and instead taking the contract and explanatory materials home to review calmly, is the single most reliable step toward avoiding harm.
Even if you've already signed a contract, there's no need to give up. If it qualifies as a chain-referral transaction, cooling-off is available within 20 days of receiving the legally required document, and there may still be room to cancel the contract after that period in cases involving statements that differed from the facts.
When you're unsure, or feel like you're carrying this alone, reach out early to a consultation service such as the Consumer Hotline "188." Keeping records of the recruitment communications, the contract, and proof of payment will make it easier for a consultation service to help. Rather than assuming "this won't happen to me," staying willing to pause and check is what protects both you and the people close to you.
This article is for informational purposes only and does not constitute financial or investment advice. Please consult a qualified professional before making investment decisions.
