subject: Why Are We Still Falling For Pyramid Selling Schemes? [print this page] Newspapers are continually full of news about frauds. People keep getting taken in by the unscrupulous fraudster. One type of fraud that keeps reappearing is the Pyramid Selling Scheme. These schemes have been well aired in the past, and some large losses reported. In 1997 the foundations of Albania's economy was severely shocked by a number of Pyramid schemes. When the schemes collapsed at the same time, around two thirds of the population had lost money. There were riots in many of the major cities and as a fresult around 2000 peple lost their lives.
Although Albania's problems were accentuated by a number of factors, including a financially unsophisticated population, deficiencies in the formal financial services industry and failures in the Albanian governance, the way in which hard working and careful people were taken in must be a cautionary tale for the rest of the world. This is especially true given the success that many Pyramid schemes have enjoyed in the years following the Albanian fiasco.
Pyramid selling schemes do work for the promoters because many people can not get their heads around the impossibility of the of their success for the contributor. The programs are disguised as good causes or money circulation clubs, such that the true pyramid nature is overlooked and it seems like a simple believable business opportunity. As an example, a typical program might be called something innocuous such as 'The Investment Assistance Community' and you are asked to donate £1,000 to be awarded silver membership.
You just need to find another two friends or acquaintances who might be interested so that you can be promoted to a gold member. That is all - then you can sit back and wait for your pay back of (say) 3,000. If you want you can buy any number of silver memberships, if you think you can recruit more people. If you receive your 3,000, you will probably decide to reinvest it in three memberships, such is your confidence in the scheme. It seems fairly plausible? But where is the 3,000 pay out coming from?
You rely on the two new recruits you have introduced and each of whom has provided £1,000 to join to also recruit a further two members each - thus elevating you to 'platinum level'. Now take note. Counting yourself, seven contributors have joined and £7,000 in total has been paid into the system. The four new recruits must each find two further participants so that a total of £15,000 has been paid in by everybody. At this time you are raised to 'diamond' status and given your 3,000. The balance of 12,000, plus your 3,000 if you put your money back in, will be absorbed by the scheme's owners for themselves. It becomes harder and harder for the lower levels to each recruit new members and the scheme is not self sustaining. It reaches a saturation limit and collapses as all of these schemes inevitably do.
And yet there are those victims of such schemes that blame the authorities for intervening for their losses, such is the incomprehension of the fundamental concepts underpinning the fraudulent nature of pyramid selling schemes. The key identifier for such a scheme, regardless of how well it is disguised, is whether or not it is offering a tangible product for your investment. If the scheme is simply a money circulation club, an investment club, or anything else that purports to pay out astronomical returns for no work, then it must be a unsustainable pyramid scheme.
Now that pyramid schemes are better understood, they are outlawed in most countries. They are illegal in both the United States and the United Kingdom. Attempts to circumvent legislation have been made, by replacing any mention of 'investment' with 'gifting' for example. Schemes are still promoted, often as legitimate Multi Level Marketing programs. Many people still succumb, if they are unable to differentiate from schemes that offer genuine products and those that do not.
by: Mark Jenner
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