Many social media users,especially the youth,have fallen victim to pyramid schemes due to the urge to earn easy money through referrals. Pressure to project a certain social status or to appear rich has pushed many youths to scandalous activities online in order to make money.
Pyramid schemes and their close relation, ‘Ponzi Schemes’ come in many variations but the basic concept is the same. You receive a message from an acquaintance, friend or relative that assures you that for a small investment you can make a huge amount of money.
You are required to recruit more participants,who join up in the same way and in turn bring more people. As more people join your network,you make more money. The truth is that pyramid schemes are a fraud. They have no legitimate wealth-generating activity as they do not manufacture or distribute anything,nor do they provide any service.
Since they depend on an exponentially growing number of referrals, they inevitably and quickly collapse. When they collapse, a huge percentage of participants lose their money. Since no new wealth is created,any money made in a pyramid scheme is money lost by someone else.
In a Ponzi Scheme, named after Charles Ponzi, a perpetrator of one gigantic scheme in the 1920s, the administrator convinces people that he or she is running a legitimate and highly profitable business.
Ponzi promised investors a 50% profit within 45 days and a 100% profit within 90 days—and from all appearances Ponzi was a man of his word, as early investors were rewarded handsomely. Due to what appeared to be his phenomenal success, he soon had investors clamoring for him to take their money.
The math, however, just did not work. Behind the scenes, Ponzi was only able to pay his investors using money from new investors, not profits. Investors are invited to put in their money and are promised huge returns,sometime even that they will double their money in a short period.
Something like “XYZ is a general investment business for everyone who wants to invest and start a good living having other business as well to expand and exploit on, and it is a simplified way of investing in commodities much more like stock exchange, currency exchange, Gold, Silver, cryptocurrency and so on.”
“Well it’s an investment extremely profitable when using the right techniques and strategies with the minimum amount like invest $300 earn $1500; invest $500 earn $2500; invest $600 earn $3500,” promised an invite I recently received.
As words of the wonderful”investment opportunity” spread,many people rush to invest “before it is too late”. Shortly afterwards,the whole operation collapses and the administrator gets away with the loot, leaving thousands of people minus their life savings.
Usually, there is no real business being operated. They may pretend to be in some highly secretive and profitable operation.However,that is just a cover.All the swindler does is payoff earlier investors with money coming in from new investors while at the same time siphoning off chunks for himself.
Multi-level or Network marketing programs, where participants sell products and earn commissions both from their own sales and from the sales of the people they recruit, can be a legitimate business using a network of independent distributors to sell consumer products. However, not all multi-level marketing programs are legitimate. Some are illegal pyramid schemes in disguise.
Forewarned is forearmed. According to U.S. Federal Trade Commission, U.S. Postal Inspection Service, and Securities and Exchange Commission if an opportunity has one or more of the following, it could be a pyramid scheme:
*You make money mainly based on how many people you recruit and the money they pay to join, instead of through sales of products to the public. This is the number one sign of a pyramid scheme.
*There is a lot of pressure to sign up immediately. Scammers often use very carefully crafted scripts designed to lower your guard and get you excited about the business. Do your homework and ask a lot of questions before investing. A good opportunity to invest in a legitimate business will not disappear overnight.
*You are required to “buy-in” to join, or you have to spend money attending seminars or buying sales materials, especially if most products are sold to other distributors rather than to the public.
*You are required to purchase expensive inventory or a lot of inventory. While you must generally purchase items in a legitimate multi-level marketing program, if the business has a no-return policy or charges large “restocking fees,” it is a big red flag.
*Just because your family and friends are participating, don’t assume an opportunity is legitimate. They may not know the business is an illegal pyramid scheme.A celebrity endorsement or member does not make the business legitimate.
*If you are considering buying into a multi-level marketing plan, ask a lot of questions and get details about the company and the products. Be careful about fraudulent marketing practices and potentially useless or unsafe products. Your sponsor and others above your sponsor’s level will make money if you join.
Image by Markéta Machová from Pixabay