pyramiding scheme

pyramid

Pyramid Scheme:

Nowadays, most pyramiding schemes guise themselves as a multilevel marketing company. The hallmark of a pyramiding scheme is earning solely on recruitment and

 The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

When considering joining an MLM program, beware of these hallmarks of a pyramid scheme:

  1. No genuine product or service – MLM programs involve selling a genuine product or service to people who are not in the program. Exercise caution if there is no underlying product or service being sold to others, or if what is being sold is speculative or appears inappropriately priced.
  2. Promises of high returns in a short time period – be leery of pitches for exponential returns and “get rich quick” claims. High returns and fast cash in an MLM program may suggest that commissions are being paid out of money from new recruits rather than revenue generated by product sales.
  3. Easy money or passive income – Be wary if you are offered compensation in exchange for little work such as making payments, recruiting others, and placing advertisements.
  4. No demonstrated revenue retail sales – Ask to see documents, such as financial statements audited by a certified public accountants, showing that the MLM company generates revenue from selling its products or services to people outside the program.
  5. Buy-in required – The goal of an MLM program is to sell products. Be careful if you are required to pay a buy-in to participate in the program, even if the buy-in is nominal one-time or recurring fee.
  6. Complex commission structure – Be concerned unless commissions are based on products or services that you or recruits sell people outside the program. If you do not understand how you will be compensated. Be cautious
  7. Emphasis on recruiting – if a program primarily focuses on recruiting others or join the program for a fee, it is likely a pyramid scheme. Be skeptical if you will receive more compensation for recruiting others than for product sales.

From <http://pocketsmart.org/fraud/pyramid_schemes/>

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