People often get involved in a network marketing program as a result of a friend or family member inviting them, unfortunately they often times do not know what they are getting involved in. They hear about the opportunity and the ability to generate revenue, and are totally blinding by what they are getting involved in.
Also, because there comes inherent trust with a friend and family member, you trust that they would never get you involved in a scheme or a scam. The problem is that the wool may be pulled over their eyes as well and they may be in the exact state as you are, thus this is how the propagation of a potential pyramid scheme can gain traction and popularity.
So how do you determine whether you are involved in a pyramid scheme, or worse yet, performing illegal behavior yourself by being involved in a pyramid scheme. I am going to help you comprehend this and make a decision for yourself as I break down pyramid schemes, how they operate, and the potential implications of being involved in one.
What is a Pyramid Scheme?
A pyramid scheme is by definition the following (direction from the Competition Bureau jurisdiction of laws of any company operating in Canada).
So if you are involved in something that appears as this, then there is a good chance you are involved in an illegal scheme. The problem is that such a high rate of pyramid schemes operate under the radar of the FTC for so long, that you could potentially be involved in illegal activity without actually knowing it.
So if you are joining a program, and your sole purpose within that program is to promote the very same program, there is a very good chance you have not only been scammed by an illegal scheme, but a very good chance you are being asked to do the same to others (thus these illegal companies are not only robbing banks, they are getting you to rob banks too).
Some obvious signs of a pyramid scheme, that should not be overlooked.
(1) High ticket/expensive products. Companies that are charging several $1,000’s for the ability to promote that very same product or service should be looked at in more detail. Often times these companies will mask these high costs as being education costs or ad package costs. You will also find that it is quite common place to have masterminds, seminars, and retreats involved in pyramid schemes to mask what is really going on.
(2) When 97%+ of participants in the scheme don’t make money. Any multi-level marketing company that is doing business in the first world nation (in particular the USA) is required to have detailed compensation plan information as well as income disclosures. If you find that less than 3% of people earn all the money within the program (or most of it), it will definitely fit the qualification of being a pyramid scheme.
(3) Cryptic wording as to how you will be making money. Most pyramid schemes will draw you into the program without acknowledging the costs up front, or what you will be doing to earn money. They often sell their “scheme” on lifestyle, on your ability to EARN lots, and your ability to generate a mass amount of revenue with a turn key business. The reality is, once you get in the door you become a victim of their sales process and it isn’t uncommon for the sales coaches/reps to ask you to sell your car, take capital out of your retirement, remortgage your house or max out your credit cards in order to pay for their high fees of the platform.
(4) The training is focused on you promoting the same program. If you get into a given program, and you find out your goal as a participant is to recruit others into the same program, then you are likely involved in a pyramid scheme. Often times these schemes are masked with all sorts or products (that serve as a facade), but the fundamental underpinnings of all the company revenue ticks along as a result of the scheme itself: You spend money on the program, then getting others to do the same, that get others to do the same.
Pyramid schemes are inherently doomed to fail. The reason being is that in order to feed the mouths at the top of the food chain, there is the constant requirement of newcomers (new money) coming into the program. Once this stops, the chain breaks and the pyramid can no longer survive. This is why you see many pyramids vanish, without interjection of the FTC. The ALL eventually will collapse.
If you are involved in a multi-level program that feels as though this is what it is doing, tread very carefully. You may be involved in illegal activity yourself and could run the risk of fines and or jail time (which I will be getting into). Also, if you have been involved in something that you believe is a pyramid scheme and you feel as though you have been taken advantage of, you can report the scheme to the FTC and other country-specific regulatory entities.
- Report to FTC (United States)
- Report to Action Fraud (UK)
- Report to Competition Bureau (Canada)
- Report to Scam Watch (Australia)
In the case where the regularity entity follows through with the investigation, you stand a chance to receive compensation for your losses.
Typically entities like the FTC will seize assets and sue the associated companies, helping the consumers involved report a portion of the investment losses to these unscrupulous programs.
Recent Pyramid Scheme Shakedowns?
There have been many different pyramid scheme take downs in the recent year and my suspicion and natural assumption is that there are going to be many more in the year ahead.
There are many pyramid schemes and ponzi schemes that have suffered the demise of the FTC and SEC (as well as other regulation entities worldwide). There is an excellent resource called PyramidSchemeAlert.org that you can check at any time as they will give you oversight and insight into companies that are being investigated for being pyramid schemes.
The biggest issue with this is that those involved are intrinsically responsible for a scam, if they are promoting the same scam to others. Those that were involved in BitConnect for example, lost an incredible amount of money and also worried about the idea that they are potentially liable for those they referred into the scam (and made money off of).
Needless to say, BitConnect is just one of MANY schemes shut down in recent months with many more to come as we move through the year ahead.
Am I Liable if I Refer Someone Into a Scheme?
Yes. The long and the short of it, if you are involved in an illegal scheme even as a distributor or as a participant, you carry liability and are deemed no different from the owner of such scheme. If you are knowingly promoting a scheme that is eventually deemed a pyramid by a regulatory authority, you could stand a substantial risk to massive fines as well as in some cases jail time.
If you meet the criteria that has been underlined and you feel as though you may be involved in something that is operating as a pyramid scheme, it is a good idea to stop. It is also a good idea to report it to the appropriate entities to avoid any potential legal issues down the road.
Contact the appropriate legislative authority based on your country rules (a simple Google search will help you with this). They will give you sound advice and point you to the appropriate channels to start an investigation on the given company.
Am I Selling a Pyramid Scheme Without Knowing it?
So in summation, it is more than possible that you are involved in and actively promoting a pyramid scheme without knowing it. All pyramid schemes were once defined as legitimate before they were eventually investigated and determined to be operating as a wolf in sheep’s clothing.
Since there is an underlying responsibility to those involved in the sell of anything (even as a distributor), you have to really be careful and understand what you are getting involved in. If you sense that something doesn’t feel right and you sole source of income (and the sole source of all the income of those involved in your program) is to promote others into the same program, then red alarms should be raised.
If you have had to spend a large sum of money to get involved in your MLM program, then chances are you should be looking into it in more detail. You could be involved in a pyramid scheme. If you have to upgrade to a certain level within the program in order to sell that level, that is criteria that should be taken very seriously as those are traits of many of the most prolific pyramid schemes that an example has been made of by the FTC, SEC, and other regulatory entities worldwide.
Be careful out there. Although there is protection against these sorts of programs, it is still very much the wild west and these regulatory entities only have so much in the way of resources.
I would love to hear your thoughts, stories, feedback, opinions and of course if you have any questions in relation to pyramid schemes, please do leave them below.