Pyramid Schemes

[silverlover2]

Tracy from Hermosa Jewelry brought up the subject of pyramid schemes.....it is a very good subject that some of you searching for a direct sales business should be knowledgable about. You just need to make sure you research the company, their philosophy and mission, and make sure they are associated with the DSA - Direct Selling Association.

The DSA's mission is "To protect, serve and promote the effectiveness of member companies and the independent business people they represent. To ensure that the marketing by member companies of products and/or the direct sales opportunity is conducted with the highest level of business ethics and service to consumers."


A pyramid scheme is a fraudulent investing plan that has unfortunately cost many people worldwide their hard-earned savings. The concept behind the pyramid scheme is simple and should be easy to identify; however, it is often presented to potential investors in a disguised or slightly altered form. For this reason, it is important to not only understand how pyramid schemes work, but also to be familiar with the many different shapes and sizes they can take.

The Scheme
As its name indicates, the pyramid scheme is structured like a pyramid. It starts with one person - the initial recruiter - who is on top, at the apex of the pyramid. This person recruits a second person, who is required to "invest" $100 which is paid to the initial recruiter. In order to make his or her money back, the new recruit must recruit more people under him or her, each of whom will also have to invest $100. If the recruit gets 10 more people to invest, this person will make $900 with just a $100 investment.

The 10 new people become recruiters and each one is in turn required to enlist an additional 10 people, resulting in a total of 100 more people. Each of those 100 new recruits is also obligated to pay $100 to the person who recruited him or her; recruiters get a profit of all of the money received minus the initial $100 paid to the person who recruited them. The process continues until the base of the pyramid is no longer strong enough to support the upper structure (meaning there are no more recruits).

The Fraud
The problem is that the scheme cannot go on forever because there is a finite number of people who can join the scheme (even if all the people in the world join). People are deceived into believing that by giving money they will make more money ("with an investment of just $100, you will receive $900 in return"). But no wealth has been created; no product has been sold; no investment has been made; and no service has been provided.

The fraud lies in the fact that it is impossible for the cycle to sustain itself, so people will lose their money somewhere down the line. Those who are most vulnerable are those towards the bottom of the pyramid, where it becomes impossible to recruit the number of people required to pay off the previous layer of recruiters. This kind of fraud is illegal in the Unites States and most countries throughout the world. It is estimated that 90% of people who get involved in a pyramid scheme will lose their money.

Fraud Disguised
Because people are attracted to the idea of making a quick buck with very little effort, many different forms of disguised pyramid schemes have succeeded in fooling people. Despite the illusion of legality presented by these revamped schemes, they are still illegal. It is thus important to recognize the characteristics of such so-called investment plans.

Many schemes will adopt the guise of gift-giving or loans that take place in investment clubs because none of these activities are technically illegal. However, the practice of donating a gift (tax free up to $10,000 in the U.S.) to someone (the recruiter), then having to recruit people into the club in order to receive a return on your investment (or your gift, rather) is essentially a pyramid scheme in disguise.

[Sparkle65]

Nancy,

I hope you were not referring to me in regard to your response. For starters, my name is Andrea. Secondly, I was not referring to illegal pyramid schemes; rather legal pyramid structured businesses who pay commissions on multiple downlines.

Please disregard this if you were not referring to me. I just wanted to clarify what I was discussing and not have it taken out of context! I'm not looking for a "fight" with anyone over my postings on this chat line. I'm looking for networking with other like-minded individuals who run their businesses in a professional, friendly manner.

Have a happy day!

Andrea

[silverlover2]

Yes, I meant Andrea.

Thank you for clarifying your purpose here....I hope to see you responding to all of our positive, professional subject threads. There are so many!

Unfortuneately, there are those companies out there that rely strictly on recruiting as their measure of success.

I am so pleased to be associated with a company that cares about ALL representatives whether they are recruiting or not. That is what is so wonderful about our business....it is OUR business, not anybody elses. How successful I am or not is all up to me!

It is wonderful that we have these networking website as well, I have gotten some wonderful business builldling ideas and hope you do too!

Good luck!

N.

[dreamsterling]

Nancy- thank you for clarifying "pyramid scheme" for those people that lurk, we wouldn't want to mislead anyone.

I think that it is disingenuous to state that ALL companies require you to recruit. Or to imply that ALL companies say that the only way to be successful is to recruit.

I needed to make extra money - that is why I chose the company that I am with. I wanted to make as MUCH AS POSSIBLE when I walked out the door. I thought that 30% was a GREAT profit potential. Also, I was NOT going to work for anyone that I had to wait to get paid, I wanted to be paid THAT NIGHT.

It is that simple, and I went to Aruba because I walked out the door twice a week and worked hard.

One person's interpretation of "success" is very different from another.