Pyramid Schemes

Thousands of Americans have lost millions of dollars participating in pyramid schemes, which are also known as endless chains. Many losses are suffered by victims who thought they were paying start up costs for a small business of their own.

Pyramid schemes are illegal scams in which large numbers of people pay money to a few people. Each new participant pays for the chance to advance and profit from payments of others who might join later. Pyramid schemes try to hide their true nature in order to fool potential participants and evade law enforcers.

To join, a potential participant will have to pay money. The only way of advancing in a pyramid is to recruit others who also pay money. If enough new participants continue to join, the pyramid scheme continues to operate. In order for everyone in a pyramid scheme to profit, there would have to be a never-ending supply of new participants. Often the new recruits are a participant's friends and family. In reality each new level of participants has less chance of recruiting others and a greater chance of losing money. The pyramid may collapse at any time. This places the participant in the position of victimizing his or her own friends and family.

Pyramid promoters are masters of group psychology. Recruitment meetings create a frenzied, enthusiastic atmosphere where group pressure and promises of easy money prey upon the potential victim's rational mind and fear of missing a good deal. Promoters also openly discourage thoughtful consideration and questioning of the scheme. Victims often find themselves tricked into participating.

It is important to recognize that inherent in the scheme is a double problem for the participant. First the scheme may collapse as the new participant buys in, causing the participant's new recruits to look to him for refunds. Second, if law enforcement finds out about the scheme, prosecutors can file charges against the participant who has introduced others as well as against the promoter since both are considered violators of the law.

Some pyramid promoters try to make their schemes look like multi-level marketing methods. Multi-level marketing can be a lawful and legitimate business which uses a network of independent distributors to sell consumer products. The difference between a pyramid scheme and a multi- level marketing plan is that in the latter, money is only made through the retail sale of a product. Participants can sell without paying to participate in the marketing scheme and consumers can buy without also joining the marketing scheme.

To avoid becoming both a victim and simultaneously violating the law, do not let anyone rush you into making hasty and unwise decisions. A good opportunity to build a business in a multi-level structure will not disappear over night. Take time to consider your investment before signing anything or giving someone your money.

Ask questions about the company and its officers, the products, their cost, fair market value, source of supply and the potential market in your area. Ask about start up fees, required purchases and about the company's policy on the buy-back of required purchases. Inquire about the average earnings of active distributors.

Get written copies of all available company literature. Consult with others who have had experience with the company and its products. Check to see if the products are actually being sold to consumers. Try to determine whether these would be a market for the product if the multi-level marketing structure did not exist. Verify all information; do not assume that official looking documents are either accurate or complete.

If you suspect that a company may be an illegal pyramid, contact your local law enforcement offices such as the police department, the sheriff's department or the district attorney of the county in which the pyramid is operating. Every person who contrives, prepares or operates any endless chain is guilty of a public offense which can be punished by imprisonment in the county jail not exceeding one year or in state prison for 16 months, two, or three years.

Thank you for allowing us the opportunity to provide you with this information and hopefully help you to avoid a costly mistake.