Pyramid schemes are illegal. They are 'money-making' clubs which promise, once you've paid a joining fee, that you can earn large amounts by recruiting new members. However, only those at the top make money and the schemes always collapse, leaving you out of pocket.
No new money is created in pyramid schemes. An endless supply of new members would be needed for everyone to receive the money on offer in a pyramid scheme. Since this is impossible, these schemes must eventually collapse and result in most members losing their money.
'Matrix' schemes offer a free hi-tech gift, like an MP3 player. First you have to buy something low-value like a mobile telephone signal booster. If you do, you join a waiting list. The person at the top gets their free gift only if a large number of new members signs up - sometimes as many as 100. In reality, most people never get the gift.
Trading schemes
Trading schemes (also described as direct selling schemes, network marketing, multi-level marketing and other names) are a legitimate form of business activity offering individuals the opportunity to earn money by selling the scheme's goods or services from home.
In some schemes, participants may earn additional commission by recruiting others to the scheme and from sales by their recruits.
Trading schemes become illegitimate and illegal when their real purpose is to generate money just by recruiting new participants.
Pyramid and chain gifting schemes
Pyramid schemes do not claim to sell goods and services but they often offer promises of quick and easy money. They may be advertised through newspapers, the internet, 'investment' meetings or you might hear about them through a relative or friend.
How does it work?
In a typical pyramid scheme, a potential member is asked to pay to join the scheme. The only way to advance is to recruit others, who also pay to join. If enough new members join, the pyramid will grow, possibly enabling some members to make money. But, in order for every member to make money, there would need to be an endless supply of newcomers. In reality, since there is not an endless supply of new participants, each new member has less chance of recruiting others and a greater chance of losing their money.
A typical letter might be like this:
Top tips to remember:Dear
You have just received information that can give you financial freedom for the rest of your life. With NO RISK and JUST A LITTLE EFFORT, you can make more money in the next few months than you ever imagined!
I should point out that I will not see a penny of your money, or that of anyone else who participates in this programme. I have already made over £150,000! I have retired from the programme after sending out over 20,000 letters of invitation to participate in this phenomenon.
Yours faithfully.
- avoid plans that offer commissions based solely on recruiting new members
- be cautious of claims that you'll make money through continued growth or commissions on sales by your recruited distributors, instead of sales you make yourself
- be wary of fake testimonials. Some promoters pay people to describe fictional success in earning money through the scheme. Ask for solid evidence rather than a glowing testimonial
- don't hand over any money or sign a contract to take part in any multi-level marketing plan until you've investigated it. Take independent professional advice
- don't agree to anything, or sign anything at high-pressure meetings or seminars
- stop, think and be sceptical. Are you being offered something for nothing? If so, why?
- Ask for advice - call Consumer Direct on 08454 04 05 06 about UK citizen
Remember, don't fall for claims such as:
'Your recruits do all the work for you, you just sit back and bank the money.'
'All you need for future wealth is your £XX starter kit.'
'Become part of the world's fastest growing industry.'
'You and your friends can enjoy wealth together.'
'I was unemployed and in debt before I discovered this opportunity.'
'I made £XXXX in XX days. I guarantee you will do the same.'
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