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Are Pyramid Schemes Illegal: Notion, Types And Reliable Facts About It

pyramid scam

Do you know what a pyramid scheme is? If not, we recommend you to read this article to the end. We have gathered the most important information in one short article. Don’t miss it!

What Is Pyramiding Scheme: The Most Common Questions of Users

To understand more about such kind of fraud you should read and know about the notion, have a clear understanding of how it works, why these schemes are illegal.

What Is the Pyramid Scheme Definition?

The first thing you should know is the notion of it. A pyramid scam is a business phishing scheme that recruits members by promising them revenues or services for joining others in the pyramid. Generally, there are a lot of warning signs of the pyramid scheme, and if you know them all the risk of being trapped will be reduced.

How Does a Pyramid Scheme Work?

What is the actual danger of such a business model? There are always winners and losers. But why? When people start recruiting more and more people the pyramid grows. Due to the process of growing those who are higher get profits more. In a perfect scheme, this is a perfect idea because eventually, all will get profits. But in reality recruiting becomes quickly impossible and because of it, the largest part of members are unable to earn money. In the end, only actual company owners gain profit because their “employees” or “investors” are buying products to resell them or to prolong membership.

Are Pyramid Schemes Illegal?

The problem that makes such a triangle scams schemes illegal is that nobody will tell you about enormous risks, buying products, etc. Deception and making unnecessary actions like recruiting and misleading others only to get your money back.

Signs of a Pyramid Scheme: How to Spot It Before It’s Too Late

  • The manager or mentor will ask you to recruit more and more people (he or she will propose to call your friends and family members). This an obligatory proposal in most cases;
  • Before you can take part, you will be asked to pay an advantage fee, make an upfront investment;
  • You will have to “invest’ a lot of money to buy the products of the company. To get them back you will have to sell those products on your own.

Pyramid Schemes Alert: Short Tip to Spot

So, what should you remember about the pyramid scheme scam? A pyramid scheme funnels profits from those on lower stages of a company to the top, and are often connected with deceitful operations. The typical scheme of pyramid fraud relies on getting a profit by charging recruitment fees. The only way to get money is to sell actual goods or services that are regularly of awful quality.

Types of Money Pyramid Scams

pyramid schemes alert

Multi-Level Marketing Pyramid Plan

Multi-level marketing (MLM) is a legal business scheme but there is one important feature: it includes the sale of actual goods or services. But members are not mandated to close any sales to make income by recruiting members under them.

Ponzi Scams

Ponzi frauds are investment frauds that work based on “Robbing Peter to pay Paul.” They may not inevitably use a pyramid scheme’s hierarchical construction, but they do “guarantee” high profits to investors by taking cash from new investors.

Job Scam

If you are looking for a new job beware of pyramid schemes! They are everywhere and work the same. You will have to come on presentations about amounts of money, endless happiness, and work in a perfect team. After the presentation, there will be a short interview with your mentor where you won’t get any information about salary guarantees. Mostly, you will get a pack with documents that you will be asked to read before the next meeting. You will spend days but in the end, you will come to a typical pyramid scheme.

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Author of article

Arthur Specter

Interests: accounting, literature, banking, jurisprudence

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