Fraud - Pyramid Schemes
Pyramid schemes have been around so long that people tend to
accept them as legit. Technically, however, a pyramid scheme is
considered illegal and fraudulent. To understand why this is, we
first need to understand what a pyramid scheme is.
Many people feel that Amway or Avon is a pyramid scheme because
the Avon representative tries to get other people to sign up
under them. This in itself does not make something a pyramid
scheme. A pyramid scheme is the process whereby one person gets
another person to pay him money for the future prospect of
getting money in return from somebody else who they in turn sign
up. What makes this a pyramid scheme is that there is no real
product being sold.
An example of one of the more recent and popular pyramid schemes
is what is called the dinner party. These dinner parties are
described as a charity group or gifting program who's sole
purpose is to bring men and women together to find "financial
support" and help them, what they call, "make a positive impact
on the human race", but all it really is, is an old trick in a
fancy new wrapper.
The way these dinner parties work are as follows:
Each party works as if it is a four course meal which consists
of an appetizer, soup, main course and dessert. Eight "guests"
put in an amount of money. Usually this is around $5,000 and is
put in at the appetizer level. All of this money is then
"gifted" to the person at the party who is currently at the
dessert level. That person leaves the pyramid with $40,000 in
cash. This pyramid then splits in two. Everyone who is in it
moves up a notch. So all the people who were at the appetizer
level then move up to the soup level. This creates eight new
appetizer level positions. This process keeps repeating with the
pyramids endlessly rotating. This creates what is called a
perpetual cycle of charity giving.
What makes this different from Avon is that with Avon you are
selling an actual product. The fact that the person makes money
from your sales does not make it a pyramid scheme. This is no
different from the regional sales manager of Sears getting money
based on the individual sales of each Sears store.
Things to look out for when trying to determine if something is
a pyramid scheme or not are the following:
1. You have to make some kind of a financial investment and
recruit others to make any money back.
2. The scheme usually makes all and any attempts to hide the
identities of the people involved.
3. The pyramid scheme is promoted as being approved by some
organization or another and certificates of this approval are
shown as proof.
4. There are a number of success stories either in print or told
orally about ridiculous amounts of money made from the scheme.
By watching out for these signs you can avoid being taken in by
one of these schemes. They are illegal and you can get into a
lot of trouble if caught participating and promoting them.