Tried & Tested Ways To Help You Avoid A Pyramid Scheme
Many people know the terms Forex trading, Forex brokers, and Forex market, but the mistake they make is they connect trading forex with a pyramid scheme. Forex business is not shady; it does not include forex robots or forex MLM. There are proper forex research funds present in the forex market through which you perform deals with the CFDs forex funds. So, forex trading is not a pyramid scheme as it has a product and service which allows you to conduct foreign exchange market gambling.
Forex trading is risky but not a pyramid scheme and some brokers earn a commission while you get all the money through the trade. However, a pyramid scheme is a business model that brings its members through a promise of payments and services in a short time while in reality does not give any outcome, and these are generally illegal in some countries. At the same time, forex trading is legal at most.
In a pyramid scheme, top members are present that recruit new members and get money for enrolling them, and then those new recruits enroll more members and earn money from them, and the cycle continues. After registering new employees, all new employees move to an upper tier in the pyramid. We know that pyramid scams or schemes are sketchy and unsustainable business models. Let’s see how a pyramid scheme works in general and how you can save yourself from these illegal sketchy schemes in some countries and can get you in trouble.
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How Does A Pyramid Scheme Work?
Pyramid schemes get their name from the pyramid structure that they represent. They move forward from a single point and get wider towards the bottom, making a solid pyramid. For example, assume you are a founder of some company or business. You alone will be the number one and represent the first tier in the pyramid. Then, you recruit ten more people and get a cash payment from those individuals. This way, under you on the second tier will stand these ten people. Then their goal is to hire ten members each, and each of these has to pay you as well.
This way, the total will become hundred people on tier three, which will pay the people on tier two and out of which some percentage will be given back to you. This way, the pyramid continues to grow, but at a point, this pyramid stops. That is the point where no more people want to join the scheme, and the pyramid channel unintentionally shuts down. At this stage, the top-level person that in this case is you will walk away with loads of cash, but the majority of the lower-tier members are left empty-handed as, except you, all others are dependent on the new recruits and the money they bring with them.
There is no sale of services or products present that will help with the cash flow. It is only people with their cash paying the higher-ups. This is how a pyramid scheme works, and a pyramid is made.This is why these schemes are referred to as fraud schemes or chain referral schemes. As soon as this scheme goes to the top, gradually, it also tumbles down. To create a pyramid, you need the lower level to be larger than the upper level. But if the lower level shrinks, the whole pyramid can collapse.
The same is the case with this scheme, and you need more people in the lower tiers to generate cash for you by recruiting more individuals who will pay them, but unfortunately, it is not a real case. If we consider real personnel, then there is a fair chance that some might not be able to pay and leave the company or business. This will make the others in the chain lose their money, and gradually the lower levels of the pyramids will start to shrink with more and more people leaving, and in the end, the pyramid will collapse.
Sometimes, it is suitable for higher people where they stop this system in time, but if not stopped in time, the pending payments will require long waiting periods that will make the people in between losing their money. This is the main reason why this scheme is highly illegal in the majority of the countries, as it just traps individuals and does not provide them with any proper income or mode of cash flow. Here we have discussed the top ten pyramid schemes of all time that will make this concept more straightforward for you.
Most Common Pyramid Schemes Of All Time
Here we will be discussing the typical pyramid schemes of all time. Most of these companies discussed are legit, have a loyal following, and are still growing. This shows that not all pyramid schemes are fraud, but still, there is no real earning potential. In the end, you have to bring in new people who will give you money. If you have a tough time selling your brand or company to recruit more members, then they will be nothing but a scam and waste of time for you.
The first one is Mary Kay Consulting. This company has never confirmed or denied that they are a pyramid scheme company because of the specific language that they use. This company avoids being listed as an illegal pyramid scheme company by not requiring salespeople to buy their inventory. Still, they further explain that even though they do not need it, the other person will benefit by doing such a thing. The FTC states that commissions of real product sales are legal, and if it is received, then the commission is legal. However, in an article where the SEC investigated this company in 2012 presented in the Harper’s Magazine, the significant portion of sales occurred between salespeople and the company. There were no customers involved, which sparked suspicion in the company and marked it as a pyramid scheme.
During the Great Recession, the Business in Motion Company provided the Canadians with a plan to earn $100,000 per year by just selling the dirt-cheap package of the vacation club. The new members had to pay a joining fee of around $3,200 while they were promised a $5,000 commission for every sale they made for the vacation club package. However, this was the red flag for how a commission can be more than the value of the actual product being sold, making it a fake promise with the pyramid scheme. A group of 2,000 investors believed in this and got scammed by the company. They were awarded a total of $6.5 million while the man behind the scheme known as Alex Klippax might face deportation back to the United Kingdom.
These were just two proper examples of pyramid scheme companies working while still not getting caught. Similarly, thousands of other companies in the mix include United Sciences of America, BurnLounge, Inc., USANA Health Sciences, Fortune Hi-Tech Marketing, Vemma, Nu Skin Enterprises, Herbalife, and Amway. All these companies perform pyramid schemes, and most of these faced fines of around $100 million or more, yet still they did not stop and perform their pyramid schemes undercover. These are just a few of the typical pyramid schemes. Multiple companies around the globe work on this scheme and are still working. It is up to you how well you can see the red flags and save yourself from these scamming schemes.
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Pyramid Schemes To Beware Of
To avoid getting scammed, these are the few types of pyramid schemes that you have to stay clear from. You might think that these are legal businesses and will benefit you greatly, but some underlying dangers will leave you with nothing. So, let’s see how these work.
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· Multi-Level Marketing Pyramid Schemes
This scheme, also known as MLM, is a legal business practice, but this model comes with actual sales of services and goods. Unlike the original pyramid scheme, the participants are not given any goals or are required to close any sales. Sales are unnecessary; the candidate must recruit more members below them to generate income.
They do involve sales of printed materials like educational courses and others that have almost zero value, but behind this, they need the candidates to bring new members. This is the indirect way of applying the pyramid scheme and scamming the individuals. So, if you find yourself with a company offering such terms, never believe them or invest in them, as you will be scammed for sure.
· Chain Emails
These emails work in chains; that is from where they get their name. Individuals are asked through emails to donate money to all the people listed in that specific email. Then they are required to remove the first name from the list and add their name and forward the email to as many people as possible to get more such donations and cash.
This is also an indirect way of the pyramid scheme where emails are being sent out instead of recruiting members and getting donations as a means of income. The recipients keep collecting the donations till their name is removed from the list, and the scam chain continues.
· Ponzi Schemes
This scheme comes with unreal promises while not following the exact pyramid scheme. Investors are promised high returns by getting money from new recruits. Most people in these investments lose all of their money and get scammed of thousands and millions of dollars.
Tips and Tricks To Avoid A Pyramid Scheme
The best way to stay away and safe from these schemes is not to become a part of the scheme itself. However, sometimes despite everything, we trust some of the things that the brand or company is offering us. Here are some tips for you to remember before entrusting any company with your money to avoid such situations.
- First, always gather complete information about the company or brand. Look for their products, office location, people involved in the company, and offered services.
- Then get written copies of the contract, marketing plans, sales sheets, and other such things.
- If you do not explain the plan in detail, avoid such promoters as there might be something fishy with the company.
- Get all the company’s legal documents that provide information about the company for the investors. Discuss this with someone legal or someone who is not involved in the company and get opinions.
- Check the demand for the product you will be selling. Check the market for similar products and the sales of the specific product you will be selling. If you find that most money involved in the company is by new recruits and not the product sales, then stay away as this can be a pyramid scheme.
- Then ask if you need to buy a product to become a distributor. If there are no items sold, will the company buy your inventory back or not? Ask these questions as if the company is original. They will buy around eighty to ninety percent of your inventory, get all these claims in written form.
- Do not fall for new startups or unreasonable profits with high values that you might have to pay to become a distributor.
Do not just go and invest. Check social media handles, ask customers how the product is, check the market and whether the company is registered, and check this opportunity with appropriate agencies to confirm its validity. Then you can decide whether your investment will be fruitful or not. Learn more on how to protect yourself by visiting our website!
Stay Clear of Pyramid Schemes Now!
These are some of how the pyramid scheme works and how you can avoid these schemes to protect yourself or your money. There are hundreds of companies performing such frauds and acts that simple and naïve people like us; might never get the hint of. It is better to conduct a deep research before investing your money into anything as you might be getting scammed while being promised fake returns and schemes.
There is nothing new about these scams. One way or another, these have been occurring for a very long time, and even though there are laws that might help you get your money back, they are sometimes not able to help you out. So in such a scenario, you lose all your hard-earned money with just a single investment and mistake of your life.
Always recheck the facts and figures provided by a company and make sure you have all the terms in written forms with original signatures, names, and, if possible, pictures of the individuals involved in the contract. Take legal advice, do proper research regarding the products and company and then invest if you are satisfied. Otherwise, stay away and do not get involved because you might quickly find yourself in a pyramid scheme.
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