Don’t Get Caught In a Pyramid Scheme

Pyramid schemes have been around for years, but scammers are still growing rich off them. Let’s look at what constitutes a pyramid scheme to avoid falling for one.

What is a pyramid scheme?

In a pyramid scheme, participating members earn money by recruiting an ever-expanding number of “investors.” The initial promoters stand on top of the pyramid; they recruit more investors, who each recruit more in turn. At each level, the number of investors multiplies. Investors earn a profit for each new recruit and pass on some of the profit to their recruiters. The further up on a pyramid an investor is, the more money they get.

Sometimes, pyramid schemes involve the sale of a product, but that is usually just an attempt to appear authentic. The product is typically faulty, and won’t be the focus of the business. Recruiters might be required to purchase the product themselves, and the company refuses to take back products deemed unsalable. Besides, new investors must pay a fee for the right to sell a product or service and recruit others for a monetary reward. This fee is usually pretty steep. 

Every pyramid scheme will eventually collapse, because they are dependent on the ability to recruit more investors … and there is inevitably a limited number of people in any community.

How can I spot a pyramid scheme?

While it may be difficult to spot the crime here, there are underhanded tactics at play.

Watch out for these red flags:

• High-pressure tactics are used to recruit new investors.

• Income is purely recruitment-based.

• You’re promised enormous earning potential in a short time.

• The company makes outrageous claims about its products.

• You need to buy the product to sell it.

If you think you’ve been targeted by a pyramid scheme, report it if a law has been broken. Also, warn your friends about the circulating scheme, so they know to be on guard.