Beware of Pyramid Schemes

Pyramid schemes are currently thriving in the world especially since the advent of the internet. Most of them falsely promise investors huge returns on relatively small investments, and deliberately confuse prospective investors' on the legitimate, often a Multi-Level Marketing (MLM) business scheme, and the illegitimate pyramid scheme. There are countless variations, all based on the same fraudulent concept. Below are a few of them.

Multi-level marketing (MLM) business schemes often have structures that are recognized by governments. The products traded in these businesses, are purchased only by members in the business but sold to anyone. The business growth hinges upon new registered members as well as profit from sales. Existing members not only buy and sell the organizations goods, but also recruit new members. They all benefit by earning a percentage of the total sales made by those directly recruited below plus profit from sales.

Ponzi schemes are money-making ventures where participants earn returns based upon new investments, proportional to the number of new entrants directly recruited. The schemes start with a few individuals who invest a minimum amount of money before recruiting others who are in turn expected to recruit more investors.

The basis of the scheme is to grow into a pyramid-like structure sharp at the top and broad at the base. Usually, those at the top of the structure receive the largest amounts of returns, as they are the initiators, whereas those at the bottom have to bring in new members before they can start earning.

Chain letters, strictly speaking, is merely a letter sent through an email or the post office, asking the recipient to make copies and send them out to several other people. Though annoying and wasteful, chain letters are not illegal. Chain letters become a pyramid scheme when they involve a chain distribution of money.

Straight-Line Matrix is glaringly fraudulent in that it offers its victims a valuable product for a small percentage of its cost, usually around 10%, but only delivers the product when around ten others join. This is repeated down a chain.