In recent years, businesses easily slid in and out significant revenue with the Pyramid scheme. A business model that recruits investors to expand its profitability.
If you’re new to this or haven’t heard of the Pyramid racket, Financial Fund Recovery can help you learn more about it. Besides, it is always best to stay aware of such trickeries.
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What is a Pyramid Scheme?
A pyramid scheme is a money-making strategy. It performs in the format of a marketing unit. First, the investors keep promoting the business and recruiting new investors in bulk. Eventually, it shapes the recruited investors into a pyramid-like structure. The investors who join at the initial phase keep moving at the apex as the numbers go up. They also benefit with more profits and power.
A popular type of Pyramid scheme is the eight-ball model. Along with a strategic plan to keep the scam activated and running for a longer duration, it mandates hiring two persons through each participant.
The business model takes off in such a manner that each person driving in the pair gets elevated above them. As a result, the network becomes a never-ending circle as two references are easy targets for any individual.
What is the Difference Between Multi-Level Marketing & Pyramid Scam?
Multi-level marketing is often mistaken for a pyramid scam, although they’re both distinct concepts. Let’s run through a few details that can help you distinguish between the two.
A multi-level marketing firm is a business model that operates through various levels of distributors. Unlike the pyramid scheme, it involves the actual sale of goods and services. Thus, while the pyramid is an illegal undertaking, multi-level marketing is a legitimate industry. Moreover, it’s likely to have a long commercial life as the products are generally in demand.
A pyramid model also recruits distributors through multiple levels. What separates it from an MLM is that it fakes the sale of products. But, of course, there are one or two exceptions to it that run a fair deal. Besides, it is an unlawful activity and is not permissible in most countries. The pyramid scheme has a short life since there are no underlying products, and its market eventually dies.
A pyramid scheme can be considered a multi-level marketing firm if it sells goods against a commission. But not every MLM is a pyramid.
How Do Pyramid Schemes Work?
The Pyramid scheme is a flawed business model that only focuses on increasing the number of its investors. But, unfortunately, it’s also one of the only methods to keep their business flowing with profits. It works on the principle, “more investors bring more funds”.
They easily disguise their evil intentions with the pretense of a business that sells products and articles. In some circumstances, they do sell goods and services as a secondary source of income. However, the investments still act as the primary source.
To put it lucidly, it builds an investment network that starts with an individual. Then, the person kick-starts the scheme with their funding and turns into a promoter. Further, it suggests that they promote the business and recruit more funders who can promote it. It’s apparent that as the volume of financers grows, the numbers keep doubling.
For instance, suppose a scheme initiates with one promoter that attains three new participants. While the one starting the swindle stays at the top, the three joiners form the second priority line. But, on the other hand, even if the three participants fail to get three more investors and attain two investors each, they still broaden the scheme with six new associates developing the third priority line.
It’s how the scheme continues to go on, taking the shape of a pyramid. However, it only lasts until it reaches market penetration. Once there’s a halt to income flow and new joinings, the entire scheme collapses. However, one thing is ascertained, with a scam like a pyramid, the end is inevitable.
How Do You Spot Pyramid Scheme?
With the rising confusion, it’s certainly not a cakewalk trying to identify a pyramid scam. Distinguishing it from a multi-level marketing firm, a Ponzi scheme, and a genuine company is only the tip of the iceberg.
Below are some warning signs that can help straighten things out and spot the scam with ease.
- The target audience is lured in with promises to deliver high returns within a short timeframe.
- Promoters try to manipulate your emotions and decision-making ability. For example, their pressurizing sales strategy makes you feel like you’d miss out on a once-in-a-lifetime opportunity if you’d delay your decision. Further, they also prevent you from analyzing the firm, its service, or investment plan.
- The scheme aims at maximizing the recruitment of investors and distributors. It broadens the network and money-making potential. On the contrary, there are little to no products sold with the massive distributor base.
- The investors end up purchasing products beyond their usage or resale capacity. It’s solely to become eligible for bonuses and other monetary remunerations.
- They advertise the entire scheme as a speed ticket to easy money or a passive income.
- Most of these schemes have no authentic products or services that they can sell. Therefore, a clear indication is that there is no noticeable revenue from retail sales.
- It puts in place a commission payment structure that’s hard and puzzling to understand.
How to Avoid Pyramid Scheme?
Spotting a bullet and dodging it are two different stories. With the pyramid racket, we notice that most investors give in and are influenced by the big fat lies. Some of them believe that the scheme runs a legitimate business, while that clearly isn’t the case.
We’ve listed down some of the pointers to keep in mind that can help you dodge this bullet named “Pyramid scheme”.
- First things first, collect all the data relating to the firm, its employees, and the products/services involved.
- Run through the legal papers and maintain records with copies of the contract, investment plan, marketing policies, and more.
- Prevent dealing with promoters who do not extend documents such as a prospectus. An investor must skim through the prospectus to understand how the investments will unfold.
- Verify whether the product or service sold has a market for it, how established the seller is, and the revenue attained through it.
- Confirm details on distributorship: the products you are expected to purchase or sell, eligibility, amount to be invested, and more. But, of course, the essential bit is checking whether the firm will buy back the unsold products and the refundable amount.
- Please do not put your faith in an investment program only because your friends and acquaintances suggest it or are a part of it. It’s best not to follow the herd.
- Skip investment programs that constantly focus on recruiting more distributors.
- Be wary of fake testimonials and anything that makes you feel like you can turn into a millionaire overnight.
- Avoid signing any contracts or paying any upfront fees while joining multi-level marketing or other similar firms.
- Stay cautious of firms that link your income eligibility to illogical conditions. For instance, most Pyramid schemes allow a commission for getting more joiners.
What To Do If You Have Been Scammed by Pyramid Scheme?
If you missed out on all the warning signs and sank into one of these scams, then you are at the right destination. We can negotiate the best resolutions for you, whether it’s a pyramid scheme, Ponzi scam, crypto scam, or any other deceptive online platform. Financial Fund Recovery can be that helping hand rescuing you through these adversities.
We are an excellent team built with fast and savvy professionals who assist scam victims in recovering their money. It includes attorneys, detectives, researchers, consultants, and technological experts. Financial Fund Recovery has won over 92% of cases and continues to investigate many more scammers. Reach out to us now for a free consultation!