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THE PYRAMID SCHEME

YOU MAY NEVER KNOW…..

Read the following sentences:

  • Wanna be your own BOSS?
  • I made 7 million dollars sitting on a park bench.
  • We are not going to sell products we are going to sell “opportunities”.
  • Anyone can join without any education or experience, no entry barrier.

If u had ever heard any of them anywhere then you got close contact with the pyramid scheme.

WHAT IS A PYRAMID SCHEME?

It is a business structure that pays more for recruiting new members or distributors than it does for selling actual product. Each of these new members usually pay an entrance fee, which is used to pay the people above them. Pyramid schemes are considered illegal because there’s more emphasis placed on recruiting than on selling actual products to consumers.

In a pyramid scheme, an initial investor recruits a second investor to work under him. This second investor is required to “invest” a certain sum of money to be paid to the initial investor.

He is also required to recruit another investor under him and another and so on. Each recruit is required to pay an “investment” to the recruiter above him and to recruit more investors. If any recruit can get just ten recruitments under him/ her then they will make back this initial investment plus a small profit. This process continues until there are no longer any recruits to be found and the lower level can no longer support the upper levels.

PYRAMID SCHEME, PONZI SCHEME AND MLM’s

let’s compare the pyramid scheme to its first cousins—multi-level marketing and Ponzi schemes.

Multi-level marketing systems (MLMs) are a legitimate business distribution model. The MLM has key resemblances to a pyramid scheme. Both are built on the premise of having your own business selling someone else’s product or service.

Both are built on the promise of enhanced earnings through recruiting new members to work underneath you and gaining a share of their sales. There is one very important distinction: MLMs make selling a valid product or service the primary way a person earns money. But the main aim of MLM’s is to increase the sales of products where as in pyramid scheme is to recruit as many people as possible who can invest.

Ponzi scheme, which is illegal and can trespass on a wide variety of federal laws. A Ponzi scheme is disguised as a legitimate investment opportunity. You give your money to your “portfolio manager.” You’re under the assumption that the money is being invested in the stock market. When you decide to withdraw funds, it’s not actually stock dividends you receive. You’re simply compensated with the money that came in from other unsuspecting participants.

The Ponzi scheme differs from the pyramid in its complete lack of subtlety. The pyramid is an attempt—however unethical—set to creatively look like a legitimate MLM opportunity. The Ponzi scheme is simply a masquerade and its practitioners are usually guilty of mail fraud and tax evasion among other criminal violations.

HOW TO SPOT A PYRAMID SCHEME?

Pyramid schemes lure people with lengthy and confusing plans which are hard to understand thus confusing us and tricking us into a wrong world altogether. So, in case of doubt, the best option is to stop thinking about the company then and there!

These schemes promise to give you huge benefits without much effort! This is the sign of a warning because if you don’t give effort, then how are you going to earn? The company will narrate you a heart-wrenching story of how a person benefitted from this opportunity, however, you have to get your facts right before coming to any conclusion to avoid getting cheated.

If you are getting paid for the product you sell, then definitely it is a genuine MLM program, but if you are getting paid for recruiting people, then beware you are getting caught in the clutches of a pyramid scheme.

Pyramid Schemes Sound Too Good to Be True

One of the most common signs that you are being recruited into a pyramid scheme is if something sounds too good to be true. With a pyramid scheme, you may be approached by someone that is offering you an amazing investment return, a no-risk venture, or even a once in a lifetime opportunity. In the vast majority of situations, these promises are completely unfounded and do not highlight the actual risk of the return on investment.

How Can I Avoid Pyramid Schemes?

Remember, the key sign of a pyramid scheme is that all the income is coming from new distributors paying a fee to join the company and buying its products and services. Awareness is critical to avoid becoming a victim of a scam.

Pyramid Schemes Focus on Recruiting Others

If you are learning more about an opportunity, you should be cautious about any venture that has income based on your ability to recruit more people to join. With a pyramid scheme, the entire business concept relies on new people joining and paying initial fees. If this is the case with the scheme and you need to get more people to give you an initial investment, it could be a sign of a pyramid scheme. While this process may work for the first few layers of people, it will eventually fall apart and people will lose out.

Here are some signs that the company is operating a pyramid scheme:

  • Your income is based mainly on the number of people you recruit, and the money those new recruits pay to join the company — not on the sales of products to consumers
  • You’re required to buy lots of inventory
  • You’re forced to buy other things you don’t want or need just to stay in good standing with the company

One other key difference: You’re likely to lose money if you sign up for a pyramid scheme.

FULL TIME INCOME FOR PART TIME WORK :

No company offers such promises unless its a scam you’re being lured into.

PASSIVE INCOME – When you hear this word you tell them to have a nice day and walk away.

ARE PYRAMID SCHEMES LEGAL?

It’s worth asking why pyramid schemes are illegal.

Pyramid schemes are illegal because the people who join them lose money. this scheme is notorious for grand illusions and false promises. The key reason that Pyramid Schemes are illegal is due to their negative impact upon consumers, as well as the distributors that work under them. Generally, the people at the bottom of the Pyramid are the ones who are impacted the most. Often left with thousands of dollars of useless stock that they can’t get rid of.

They use products as a key to make people invest and recruit as many more as possible under every each person.

There will be a product or service— most often a service that requires no production costs— which is low quality and has no meaning to actually purchase it—but that is merely a façade to provide cover for their pyramid. The way you make money in a pyramid scheme is by recruiting new members, getting them to pay a hefty initiation fee and then receiving a share of that fee. Just reading this makes it sounds illegal right?

Five famous pyramid scheme companies that ended in legal action, with their founders in jail or heavily fined : BurnLounge Inc. ,Business in Motion, Fortune Hi-Tech Marketing, Irish Liberty/Speedball scheme, United Sciences of America .

FINAL THOUGHTS

Pyramid schemes are difficult to spot. If you involve yourself in pyramid scheme, then you are working to make someone else rich. When someone promises you a quick and easy way to get money, our natural instinct as human beings is to jump at the opportunity without thinking twice. Pyramid schemes are not a new concept, they have existed for around a century.

The truth is, Pyramid schemes are very attractive and people have made money from such schemes, however, it is mathematically impossible for everyone to make money in a pyramid scheme. Pyramid schemes don’t work unless somebody is losing money. According to Pyramid Scheme Alert,  88% of the members in a Pyramid Scheme will be on the bottom level and will lose their money.

In conclusion, Pyramid schemes are illegal because people don’t lose their money due to normal financial and economical forces, but because the system is set up for them to lose so that a few at the top will win.

If you find this information useful and interesting share it to 3 people you know and then encourage them to do the same. Come on…this isn’t a Pyramid scheme you can share it!

Hi Ya! I'm lahari natti, a business administration graduate. Not yet graduated , but I hope I do. Not because of my backlogs(cause I don't have any) but because of the covid pandemic. I'm here to write short stories, memoirs, anthology and marketing strategies and finance stories. I know its a lot but its worth reading. "

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