smartconsumer: Guarding Against Pyramid Schemes - Know



Guarding Against Pyramid Schemes

{What to Know} {What to Do}
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What are pyramid schemes?

In a pyramid scheme you pay money to join a group. The cost could be several thousand dollars. You are told that you will make even more money by getting other people to join the group. The group may describe itself as a business or as a group of friends.


The group does not sell products or services to the public. There may be a product you can sell, but only to someone else who joins the group. That person would then have to sell it to yet another person who joins the group. You can only make money by recruiting new members or new salespeople.


To trick people into joining this scheme, the groups are given names that make them seem like social clubs. They may be called:

  • Airplane Game

  • Original Dinner Table

  • Gifting Circle

  • Treasure Traders


Pyramid schemes are illegal. If you join a pyramid scheme you will lose money. If you invite other people to join the group, you are breaking the law.


How do pyramid schemes work?

The person who starts the group will get several people to join her and pay money. The money will go to the person who started the group. The new members will each try to recruit more new people to join the group. Those new people will pay money. Some of their money will go to the person who asked them to join the group and some will go to the person who started the group.



This is a scam because the only way to make money is if you do not run out of new people to join the group. There are not enough people in Connecticut or even the whole world for this to last very long. The first few people will make money. Everyone else will lose money. If you invite a friend to join the group, your friend will lose money.


How can I spot a pyramid scheme?

  • You have to pay a lot of money to join the group.

  • You are promised that you will make more money later when other people join.

  • The amount of money you make is based on the number of people you recruit.

  • The group does not make money by selling a product. If it sells a product, the only way to make money is to recruit salespeople.

  • There are testimonials about the group or product by people you cannot contact.







Content Last Modified on 2/14/2013 2:08:34 PM