How Does a Pyramid Scheme Work?
July 24, 2018
The reality is that these days you can find a scam in any search you do on the internet, very easily. Business and investment are not an exception. In fact, it tops the list of the industries most affected by scams.
The pyramid scheme is a very well-known scheme, and sure enough, one of the first fraud schemes as it is pretty easy to fall prey off. It is very hard to recognize if something is wrong with it, indeed.
Even though Pyramid Scheme has first started almost 3 or 4 decades ago now, it is evident to this day and the signs of how the scheme works, should not be looked over, as the fraudulent doesn’t care how much you work or how many kids you have to take care of.
Today I decided to talk about this infamous fraudulent activity in particular, where you will find all you need to know on how does pyramid schemes work, what are the biggest pyramid scheme companies and how can you prevent them from happening to you. Let’s get right in!
How Does Pyramid Scheme Work?
The Pyramid scheme is pretty similar to the infamous Charles Ponzi scheme. Both of them work as an unreal business without selling any product or service, nevertheless, they manage to pay the first investors by the latter ones’ investment. A circle this, that goes on and on with the money coming from outside and none as revenue by the company sales.
Unlike Charles Ponzi’s case, the Pyramid scheme urges the victims to invite investors to the company so they can have their initial investments back or increase the profit.
The earlier preys get paid by the latter ones.
Following the same strategy, the company keeps growing by their victims inviting their peers, relatives or people they know, which has resulted in getting paid in a lot of cases, at least at the beginning of the so-called “company”, just to make the activity look more real.
A pyramid this, that keeps going by the decreased number of new-joiners, which are head of the foundation that keeps it alive. Without new investments coming in, the management gets exposed very quickly and the pyramid collapses, eventually.
Biggest Pyramid Scheme Companies
The same fraud activity has existed since human life is known to do so. However, a Federal Trade Commission officer in an interview made long ago when the first of many MLM’ companies were exposed as plainly Pyramid schemes, Debra Valentine, said that the first time the agency had to intervene was as early as the 1970s.
The operation was executed on a company with the name of Koscot Interplanetary Inc. The same pretended to sell products in the category of beauty and cosmetics.
However, this was not the only cause of an MLM company getting exposed, and the tradition is alive to this day with a lot of companies operating as such.
Some other pyramid scheme operating companies include:
- Global Information Network
- National Marketing Company
- Five Star Auto Club
- YES International
- Fortune Alliance.
I would love to say this is the FULL list. But it is not.
How to Spot a Pyramid Scheme
If you ever fell into the trap of a pyramid scheme or you have an offer that has the same telltale sign as right before your nose, then you are in the right place to see if the one you are dealing with is a real deal or your worries and doubts have a name.
Therefore, I decided to bring some of the most common ways how to spot a fraudulent activity of pyramid schemes, listed as below.
- You are required to make a certain investment but you are hardly told of the return. Even when you are, the income is WAY too high for the effort and amount of time required.
- The company is not known for promoting or selling any specific product or service, sign this that leaves you to understand the way the company operates in.
- Even after you join the so-called company, you are asked to pay for “services” or “investments” additional to the payment you have done initially.
How to Avoid the Pyramid Scheme
Some of the most efficient ways how to avoid the pyramid scheme are certainly the same you should remind yourself in most other online and investment scams. To remain calm and not follow the lead of someone who promises huge income without any real effort or time needed.
Specifically, when offered a chance to invest your money for returns of any kind or sum, make sure you follow these two simple tips to avoid the pyramid scheme.
- Be cautious when an offer is presented to you to invest the money that requires from you to bring consequent investors in, so you can increase the eventual profit or withdraw your initial investment.
- Research the internet for the legitimacy of the individual or company you are in contact with, before making the final decision to invest your money.