How You Can Tell a Company Is a Pyramid Scheme

In the classic "pyramid" scheme, participants endeavour to make money solely by recruiting new participants, usually where:

• The promoter promises a high render in a brusk period of fourth dimension;
• No genuine product or service is actually sold; and
• The primary emphasis is on recruiting new participants.

All pyramid schemes eventually collapse, and about investors lose their money.

Fraudsters often promote pyramid schemes through social media, Net advert, company websites, group presentations, briefing calls, YouTube videos, and other ways. Pyramid scheme promoters may become to great lengths to make the program look similar a business, such as a legitimate multi-level marketing (MLM) program. Simply the fraudsters use coin paid by new recruits to pay off before stage investors (usually recruits every bit well). At some point, the schemes get too big, the promoter cannot raise plenty money from new investors to pay before investors, and people lose their money.

These are some of the hallmarks of a pyramid scheme:

• Emphasis on recruiting . If a program focuses solely on recruiting others to join the program for a fee, information technology is likely a pyramid scheme. Be skeptical if you volition receive more bounty for recruiting others than for product sales.
• No genuine product or service is sold.   Do caution if what is beingness sold every bit role of the business organisation is difficult to value, like and then-chosen "tech" services or products such as mass-licensed east-books or online advert on little-used websites. Some fraudsters cull fancy-sounding "products" to arrive harder to evidence the visitor is a artificial pyramid scheme.
• Promises of high returns in a short time menstruum. Be skeptical of promises of fast cash – it could mean that commissions are beingness paid out of money from new recruits rather than revenue generated by production sales.
• Like shooting fish in a barrel money or passive income.   There is no such thing as a free lunch. If you are offered bounty in substitution for doing picayune piece of work such every bit making payments, recruiting others, or placing online advertisements on obscure websites, you may be function of an illegal pyramid scheme.
• No demonstrated acquirement from retail sales.   Ask to see documents, such equally financial statements audited by a certified public accountant (CPA), showing that the company generates acquirement from selling its products or services to people outside the plan.  As a general rule, legitimate MLM companies derive revenue primarily from selling products, not from recruiting members.
• Complex commission structure . Exist concerned unless commissions are based on products or services that you or your recruits sell to people outside the program. If you practise non empathise how y'all will exist compensated, exist cautious.

All Pyramid Schemes Plummet

When fraudsters effort to make money solely past recruiting new participants into a program, that is a pyramid scheme, and there is only 1 possible mathematical result – collapse. Imagine if ane participant must find half dozen other participants, who, in plough, must observe six new recruits each. In only 11 layers of the "downline," you would need more participants than the entire population of the U.s. to maintain the scheme. This infographic shows how all pyramid schemes are destined to collapse.

Additional Information

FTC Blog: This "game" is a concatenation letter scam

Investor Alert: Beware of Pyramid Schemes Posing as Multi-Level Marketing Programs.

Investor Alert: Social Media and Investing – Fugitive Fraud.

FTC Web log: The Telltale Signs of a Pyramid Scheme

FTC Blog: Pyramids of Fortune?

FTC Article: Multilevel Marketing

Watch this video featuring role player Michael Douglas: FBI Financial Fraud Public Service Announcement

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Source: https://www.investor.gov/protect-your-investments/fraud/types-fraud/pyramid-schemes

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