“You need to check out this company I’m investing in… it’s a no-brainer.”
“My friends are in this club, and it’s crazy, they basically paid a membership fee to join, and they are getting checks every month for doing nothing!”
Have you ever been on the other end of one of these conversations? Congratulations, you’re now likely part of the crowd who has been pitched to participate in a pyramid scheme.
No, this isn’t a trip to Egypt to see those pyramids. This pyramid is built on a lot of people working hard to make one person look good. Let’s go with the visual of an actual pyramid; at the top, you have one brick, and then trickling down and outward are many bricks holding that one at the summit – these schemes are very similar in that they rely on many individuals to support the ones above it.
The individuals or promotors at the top of the pyramid will pitch you to join in, and it may be identified as membership dues, up-front product costs or maybe just investment dollars. Now, all that you have to do is get two more people to do the same thing and join, invest, or buy. Next, they will do the same with two more people. This process will go on and on. You are promised payments and vast riches from all of the people that will be assembled “under you”.
There is a good chance that this opportunity is not a sound investment, a great purchase, or a club that you want to be a part of. Pyramid schemes are illegal in the many parts of the US (and elsewhere) and likely to put you in a compromising position with friends, colleagues and family members when it all goes bust.
The people who are selling you on this idea will tell you that it’s not a pyramid scheme, or that it is totally legal or perhaps that it is multi-level marketing. Multi-level marketing is a way of selling products direct to consumer without going through another channel or retail outlet. Sometimes these do survive and are legitimate, but you need to do your research, and always proceed with caution. The products and company should be reliable and not a disguise as a way of simply collecting money from unsuspecting individuals. The company should offer a way of buying back unsold or unused product – a notion not found in pyramid schemes.
Services or the promise of a future product or way of doing business is also the basis found in many pyramids. Don’t fall for it. You have nothing to gain, and a lot of money to lose – including the relationships of those that you convinced to join in on the game.
So how can you protect yourself or repair the damage if you’ve been defrauded by a pyramid scheme?
- Research the company. Gather information on its officers, products, and financials. What is their product roadmap or plan
- Is there a demand for the services they are selling?
- Don’t contribute to large startup costs and identify whether or not they have a buyback policy.
- Do not invest just to please someone else. If your gut tells you to stand firm and not participate, your relationship will survive it. It is far less likely to survive the failure of something you didn’t want to be involved in initially.
If you have been duped or suspect fraudulent practices, contact your local and state government to see if there has been any activity reported against them already. You can then submit yours to be included in the report.
Remember, if it is legitimate, it won’t be a relationship built on unanswered questions, ideas, or assumptions that you trust people and a product you don’t know.