Why Are Pyramid Schemes Illegal

Pyramid schemes are a money-making system that has a short life cycle. They usually consist of promising unsuspecting people, payment or service based around ideals of enrolling other people into the scheme. The system they use doesn’t offer any tangible investment, products or services to the public.

Pyramid schemes come in many different forms, mostly though they all have a common objective, generate income from the recruitment of members. Primarily, why that is, every new member is required to pay a joining fee on signing up to the scheme.

It’s a bit like a revolving door because the focus is based totally around new members, and the upfront payment suggests there is always a constant cash flow rolling in.

In some cases, there are products or services connected to the scheme; however, they tend not to carry any significant value.

Most members will receive a monthly payment, with the most significant portion finding its way to the top.

Payments are calculated based on new membership, usually on a monthly cycle. Also, any products or services sold, are included in the monthly payment; however, they’re inclined to be worth almost nothing, or they’re not related to the returns, promised previously.

Pyramid schemes are business models that predominantly rely on the recruitment of new members with the purpose of them doing the same. as

Mostly, pyramid schemes are illegal and very risky. Any project that promises a ‘get-rich-quick’ could quite quickly end up costing you a lot of money.

How Does A Pyramid Scheme Work?

How many times would you have you heard about these types of schemes? More often than not, you’ll hear about them from family, friends or even neighbours.

Principally, schemes are established, on the premise of recruiting members in a variety of different ways. The two that are most prominent, seminars and home meetings, there are other forms used like telephone, email, post or social media.

The system revolves around joining fees and relies on existing members convincing others to do the same, to keep the revenue rolling in.Pyramid Scheme

Survival of these schemes relies heavily on the signing of new members; in other words, there needs to be a never-ending supply of new members. Otherwise, it runs out of money and quickly dries up.

A nifty little trick that some use in disguise; they never reveal their real motive. As a camouflage, introduce poor quality overpriced products that are of low value, and almost impossible to sell — leaving their principal money-making revenue through recruitment and that being their ultimate goal.

Promoters make their money from all the members below them, so the more that join, fatter their wallets become.

Every member below the top rung pays them compensation fee, so is it any wonder why they continuously encourage and engage others to recruit new members.

When the scheme has reached saturation point, and the new numbers start dropping off, then the whole system falls over or collapses with the promoters walking away with wads of money.

All of these types of schemes do eventually collapse, leaving lots of people hurt, and out of pocket, resulting in the breakdown of friendships, relationships and even marriages can be damaged over money lost in the scam.

Pyramid schemes are against the law, therefore illegal to promote or participate in such projects.

What Are The Warning Signs

An opportunity is offered to you to connect with a group, scheme program, or team where you can make money by recruiting new members.

The scheme engages you in the offering of goods or services of little to no value that only serve the purpose of promoting their plan, along with information sheets.

There Are High Up-Front Costs

More often than not you’ll find the promoter (top dog) maintains that “this is no pyramid scheme”, or this is a legitimate scheme.

Safeguard Yourself

Don’t be pressured by anyone into any decision making that involves money or investments upfront. Step away and get independent legal advice to give yourself peace of mind.Personal Protection

Any scheme that proclaims a guaranteed income steer clear.

Query the legitimacy or the rewards promised. Are they dependent on product sales? What’s the real value of the products? Are they sold at a reasonable price that is in demand by consumers?

Always be on the alert, illegal schemes more often than not start from family or friends. So they may try getting you involved, without you knowing that more likely than not it will be a pyramid scheme of sorts.

It is against the law not only to promote a pyramid scheme but to participate in one.

Have You Ever Been Scammed?

If you think you have, and, you have provided all your account details to a scammer, contact your bank or financial institution immediately.

I encourage you to report scams to the authorities. Reporting scams helps to warn people about such illegal practices.

Pyramid System And Types

Pyramid schemes demand that all new members must pay for the privilege of becoming a member.

They are influenced, with the most outlandish promises. Likes, they will receive an incentive payment for every new member they sign up.

What they don’t tell you, the directors, (top dogs), also get a sizable slice of these payments, and in most instances, they have almost no involvement in the recruitment. So, it’s a bit like “Money For Jam” for the directors. Can you believe that?

While, the poor grassroots distributors work their butts off recruiting, to line the pockets of those at the pointy end of the pyramid. Why fall for the trap?

The Basic Concept Models

Rarely involve salable products or services that carry any real value.

The underlying reality of revenue-raising is toward recruiting new members or canvassing more money from the existing members.

Such are the manners of pyramid schemes; they quite carefully follow a calculation system that is in line with that of an aggressive growth formula. Starting at the top and as you cascade down the pyramid, each level grows wider that one above it. As a result, pyramid schemes rely on making money from everyone who enrols; And, that means it has to expand indefinitely continually; Mathematically, that is not possible.

When the recruitment runs out of steam, and that will inevitably happen, so does the revenue stream; So, the plan falls apart and collapses.

Given the most substantial numbers in the sequence are all at the end, means most of the members will be in the lower levels of the pyramid; Worse, the bottom-most layer is where most members are. They are the ones working to promote the scheme, not the product; and, they never make any money. However, those who are in the upper levels do make a profit. But, the bulk of the revenue feeds the fat cats at the top; They are the ones making the most money.

When the system does collapse, most of the ground root, aka, distributors will not have made any money, because they will not have had the opportunity, even though they will have paid their joining fee. That is the reasoning about why pyramid schemes are scams.

Here are THREE trendy Pyramid Schemes

Eight Ball Pyramid Scheme

The “Eight Balls” Layout

The model is known as the “Eight Ball” consists of (15) fifteen memberships. Using a calculation sequence of, 1+2+3+4+5 =15.

However, pyramid schemes use a harmonic progression of 1+2+4+8 =15. But, lots of the pyramid systems are more upmarket using a much simpler layout. Simply because, they acknowledge, recruiting significant numbers of new members into a system could prove to be hard to achieve. Therefore, using a model that simple and relatively straightforward will be much easier to use.

The matrix to this model, each person is required to recruit two more. Sounds easy, right? But, the depth necessary for you to recover your money also increases. The system demands one person hires a further two people; they, in turn, must do the same and so on.

This particular system was previously named the “Airplane Game”, with the tiers assigned as, Captain, Co-Pilot, Crew, and Passengers; And, that is how they identified each level.

Yet in another instance it was called the “Original Dinner Party”, labelling the tiers, “dessert”, “main course”, “side salad”, and “appetiser”. The person on the “dessert” course is the person at the top of the tree.

Another variant, “Treasure Traders”. A term used in gemstones, for the likes of “polishers”, “stone cutters”, and so on.

There’s every likelihood, schemes of these types will most likely be soft-pedalling the pyramid identity by referring such systems as, “gifting circles” with money being “gifted”. Popular methods such as “Women Empowering Women” do precisely this.

The Aeroplane System

The Aeroplane System

For instance, the aeroplane system, a four-tier (1 + 2 + 4 + 8) scheme. The person at the top is the “Captain”— the two underneath are the “Co-Pilots. Four below them are the “Crew”, then the remaining eight under them are the “Passengers”.

Whichever term used, there are a total of 15 people.

The aeroplane system has a failure rate of around 90% at ten levels deep.

For example, the eight passengers must pay a sum of money to join the scheme. So, if we pluck a figure out of the air of $5,000 X eight = $40,000, and that goes directly to the captain. He now leaves the system, and everyone moves up one-tier.

There are now “Two Captains”, so they split into “Two Different Groupings”. Each new “Captain” has to recruit “Eight” new passengers.

But, the catch is, and quite clearly, for them, (base passengers), to see a return on their investment, must reach the “Crew” status (Co-Pilot). Given that such are the odds of them reaching that level, without the scheme falling over first, is almost impossible; And, so they’ll lose their money.

Is it any wonder to see why the scam artists like this system, because, and unless you’re a crew member, you lose everything, and the tricksters walk away with their pockets loaded with your hard-earned.

The design set-up is based on the trickster filling all first three levels, (i.e.), tier-one — two and three with fictitious names. That ensures him of collecting all of the first seven payments, at eight times the joining fee; And, guess what? He hasn’t even parted with one single penny of his capital.

The Matrix System - Scheme

 A Matrix System/Scheme

Matrix schemes use the same dishonest, flawed system as a pyramid.

Followers, to be placed in the popular product waiting list need first to pay a joining fee. Sadly, only a fraction of those on the waiting list will receive the opportunity to reach the front position.

Given matrix systems operate the same geometric progression laws as pyramid schemes; Doomed to fail.

Schemes that operate a queue system with a person/s at the head of the line gains all the benefits when a prescribed number of new members join the end of the queue. Benefits can range from, TV’s Game Consoles, Digital Recorders and much more.

For instance, the person at the front, to receive their item/s must first recruit “Ten New Members”. Then they will leave the line.

To get a position in the queue, each member must buy an expensive item that is potentially worthless as an e-book.

The organiser of the scheme is the big winner because the revenue generated from all those new members far exceeds the item and transport costs; So, (the organiser) is more than happy to reward the person at the front of the queue.

Controllers (the organisers) can further profit by starting a scheme with a queue of bogus names. However, before genuine people get to the front, these (false names) must be cleared out. Like all of the types of schemes, when no more people are willing to join the queue, the system will collapse.

Schemes may not reveal or may attempt to exaggerate prospective members queue positions, a condition that essentially means the system is a lottery.

Several countries have ruled that matrix schemes are illegal on that basis.

Typically, it’s a system where a person publicises or praises something or someone for reasons of self-interest or personal profit.

Multi Level Marketing Scheme

Multi-Level Marketing And It’s Connection

MLM companies, run on a pyramid scheme, and more often than not, people become confused with what is a legal system and a pyramid scheme.

As stated by the U.S. Federal Trade Commission, legitimate MLM is unlike pyramid schemes:

They have a real product to sell. Not all multi-level marketing plans are legal. If the money earned is dependant on sales to the public, it may be a legitimate multi-level marketing plan. On the other hand, if the money earned is related to the number of people recruited and sales to them, it’s probably not. It could be a pyramid scheme.

Pyramid schemes, to hide their pyramid structure may profess to be selling a product; but are using it to cover up their system.

Generally speaking, people line up MLMs with pyramid selling, while others use it to highlight a pyramid scheme and to be masquerading as a legitimate MLM business.

The warning from the Federal Trade Commission says,

Don’t get involved in any plans where the money you earn has a primary focus on recruitment of other distributors and sales directly to them. Rather than generating your sales from people outside the plan who intend using the products.

It also says research is the best tool; And, provides a ten-step principle to consider.   

  1. Research the company’s past performance
  2. Research as much as possible about the product
  3. Ask many questions
  4. Have a clear understanding of any restrictions
  5. Be wary of any bogus systems talk to other people for some extra advice
  6. Run it by friends for some outside input, and get their gut feeling
  7. Don’t be rushed into any decisions take as much time as you need
  8. Consider whether your ideal goals suit the plan. Some observers maintain MLMs, generally are legalised pyramid schemes. Usually speaking, pyramid schemes encourage their recruiters to sign on to a business plan, and, typically with a high upfront cost.
  9. There are different laws in every country and state, who take various actions toward pyramid schemes.
  10. Because many legal multi-level-marketing systems operate legally, they have pressured the U.S. government watchdogs to preserve the legal status of such orders.

My Final Two Cents Worth

One of the hardest decisions, what is legitimate and what isn’t; And for me that makes it a real turn off. With so many cagy tricks they use these days, it’s quite easy to get caught up a web that is far from legitimate. They ply their crafty trade, by tricking you into believing how easily and quickly you’ll earn some money. But, they know deep down, it’s not possible. All they want is your “MONEY”, and after a while, the scheme collapses, and they’ll skip town leaving you, financially, much worse for the experience.

If you are genuinely interested in making money with an adaptable timeframe to suit you; Then why not consider starting your own online business? You choose your promotional parameters, not others pulling strings and telling you what do do. You get to select what you want to promote, in your own time and at your own leisure.

Does this resonate with what you’ve been looking to find?

Then take a look at my favourite mention on how to start your own online business. There’s no be having to have your friends join, no upfront cost with no upsells. However, what you will get is “FREE”, training, hosting tech support and heaps of community help.

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