A pyramid scheme is a scam. It is a fraudulent system of making money based on recruiting several people as an investor. The initial promoters recruit investors, recruit more investors, and so on.
Often in a pyramid scheme, you will be encouraged or even required to buy a certain number of products at constant intervals. even if you already have more products than you can use or sell. You may have to buy products before you are eligible to be paid or get a commission. This scheme is called a “pyramid” because, at every level, the number of investors increases. The small group of initial promoters at the top requires a large base of later investors to support the model. Top finance experts at Money 2.0 Conference have reviewed that pyramid schemes are set up to motivate everyone to keep recruiting people to keep a constant stream of new distributors and their money flowing into the business.
Is Multi-level marketing any different?
Multi-level marketing is a process of selling products directly to consumers without intermediaries. Products are sold via a network of distributors and salespeople set up to look like a pyramid. Each distributor recruits and trains a different group of distributors and will earn a specific commission on their sales and sales. Because of their pyramidal structure, it is often compared to pyramid schemes.
A legitimate multi-level marketing company emphasizes genuine products and services. A pyramid scheme uses products to impersonate its guests to collect money from the investors on the lower levels to pay other investors further up the pyramid. The products or services the victim has to buy are often impossible to sell, and the pyramid’s promoters refuse to purchase them again. On the other hand, genuine multi-level marketing companies will buy back unsold products or merchandise at a discounted rate than the original.
Why do people invest in pyramid schemes?
According to the cybersecurity experts at Money 2.0 Conference, different categories of people invest in pyramid schemes. Some participate out of the grid, misled into thinking they are joining an “investment program,” and those who believe that the product or service is genuine.
Those who participate in pyramid schemes out of greed often know they are illegal. They nevertheless participate, hoping the scam will last long enough for them to make some money. However, the result usually is very dismal. At best, a few promoters walk away with lots of money, leaving most investors to lose all the money they put into the scheme. The only way anyone could make money from pyramid schemes is if others are defrauded into giving money upon the promise that someone will repay them.
Pyramid promoters often target close groups such as religious or social organizations to pressure participation. They give some attractive names to the schemes, such as investment clubs. Participants of these clubs or programs believed that the products were legitimate and inevitably realized the scam. Only when these products are unsaleable, and the promoters refuse to purchase them back, do they finally realize that they have participated in an illegal pyramid scheme.
Why is the pyramid scheme a scam?
Pyramid schemes are a sure-shot failure because their success depends on the ability to recruit more and more investors. Since only a few people are in a given group, all pyramid schemes will inevitably collapse. The only way to make money now is to defraud other people by promising them high returns and making them fall into this trap.
Unlike pyramid schemes, multi-level marketing companies survive due to legitimate products and services.
Some warning signs of a pyramid scheme and ways to avoid it, as reviewed by financial luminaries at the Money 2.0 Conference, are:
- Promoters make unrealistically high promises about their earning potential. These promises are fake.
- There is nothing to sell. Sometimes fraudsters will give products or services a fancy name to sound more legitimate.
- Many pyramid schemes value primarily recruiting new participants. Programs that emphasize recruiting participants and paying a fee to join the program are likely pyramid schemes.
- Trying out a pyramid scheme is tempting because it promises the ability to earn high money easily. However, you may be a part of a pyramid scam if you are offered compensation for doing trim work like making payments, recruiting others, or placing online advertisements on random websites. Be very careful of the promise of easy money.
- Any program that offers quick money is something to be skeptical of. It means commissions are paid out of money from the recruits rather than the profit generated by product sales.
- Joining the program may require you to pay to join. Even if the buy-in is a recurring fee, be cautious about any required buy.
- A complex commission structure is one of the most significant trademarks of a pyramid scheme. Unless commissions are based on products you are selling, be cautious.
- If you are not allowed to ask questions in any business or work. if you can not get the answer to the logic behind the exponential growth and sky-high returns of the program, it is better to stay away from such business opportunities.
- You have the right to see the documents that show that the business is generating revenue by selling its products or services to people outside the program. If your business is unwilling to show anything, it will most likely be a scam.
Knowing who you are dealing with and that you completely understand your investment before handing over your money to any business is vital. Knowing the investment process for any individual to not fall victim to the promise of high and exponential returns in a fraction of time is essential. Additionally, you can enhance and augment your financial knowledge and know the difference between a scam and a legit investment with our financial experts at Money 2.0 Conference, scheduled this winter.