What Are Pyramid Scams?
Pyramid scams are illegal operations to scam you out of your money and enlist you to unknowingly help scam others out of their money as well.
Pyramid scams are illegal businesses whereby the promoters at the top of the pyramid make their money by having people join the scheme. They then pocket the fees and other payments made by you and by those who join underneath you.
Difference Between Pyramid Scams And MLMs
Sometimes, however, it is hard to tell whether the business opportunity is a pyramid scam or a genuine multi-level marketing (MLM) opportunity. Here’s the thing: MLMs are legal business opportunities that use a ladder-climbing system, but are selling genuine products or services. Increasingly pyramid scams are being made to look like MLMs by selling products or services. You can tell the difference between the two by evaluating the quality and the importance of the product or service being sold. A pyramid scam will put little importance in the actual selling of the product or service, and the product or service will be overpriced, of poor quality, difficult to sell, or of little value. Making money out of recruitment is still their main aim.
The reason that this is a scam and that you won’t make money is because there would have to be an endless supply of new members. Reality is that the number of people willing to join the scheme (and therefore, the amount of money coming into the scheme) dries up very quickly. When the pyramid collapses, you and those beneath you are out of your money and the top players walk away with all the money in their pockets.
Warning signs that the business opportunity is a pyramid scam and not an MLM opportunity include:
- You are offered a chance to join a group, scheme, program or team where you need to recruit new members to make money.
- The scheme involves offers of goods or services of little or doubtful value that serve only to promote the scheme
- There are no goods or services being offered for sale by the scheme.
- The promoter makes claims like “this is not a pyramid scheme” or “this is totally legal.”
Similar Scams To Avoid
There are some pyramid style scams that don’t quite fit the above mould. Stay clear of the following:
- Chain Letters- They ask you to send the email along plus some money by mail to the top names on the list, then add your name to the bottom… and one day you’ll be a millionaire. Most times the names in the chain emails are manipulated to make sure only the people at the top of the list (the true scammers) make any money.
- Investment Seminars/Real Estate Scams- These are high-pressure sales in high-risk investment strategies. Scammers profit through attendance fees and by selling property and investments at inflated prices.