What is a Pyramid Scheme?
In a “pyramid scheme,” unsuspecting and often naive individuals are roped into the fantasy of making quick money easily. These schemes involve participants being required to recruit new participants in order to make financial gains through the payment of recruitment commissions. Profit is often gained not by the sale of goods, but by the recruitment of new individuals (i.e. the sale of new distributors). The money gained from newer victims of pyramid schemes is paid to older victims in order to keep a cash flow and to convey a guise of legitimacy.
Pyramid schemes are also referred to as “franchise fraud” or “chain referral schemes” and rope people in with their promise of a high return in a short period of time.
How can you spot a pyramid scheme?
Pyramid schemes are often promoted online through social media and other internet advertising. It wouldn’t be unrealistic to assume there is someone on your Facebook timeline right now telling their friends about this “amazing investment opportunity”. These fruaudsters will go to great lengths to convey a sense of legitimacy and allure around their business with the grandiose promise of quick and easy money. Do not buy into the fake fantasy that you can make a pretty penny without putting in the hard work.
If someone’s business is focused around recruiting more people to join the program for a fee, particularly if the recruitment commission is higher than that of a sale of a good or service, it is a pyramid scheme. Be particularly wary if there is no product or service sold at all.
Why is a pyramid scheme so dangerous?
While a pyramid scheme may look like an excellent opportunity from the outside, all pyramid schemes collapse eventually, and most investors lose all of their money. Additionally, it can be incredibly difficult to induce other prospects to make the same investment that you did, and because you are promised no return unless you are able to bring in others, you may not only never make money, but lose your original investment as well.
Do you find yourself the victim of a pyramid scheme and you can’t get out of it? Consider talking to a private investigator about your options and what your next steps should be.
