Let The Buyer Beware

Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure. There are two tell-tale signs that a product is simply being used to disguise a pyramid scheme: inventory loading and a lack of retail sales. Inventory loading occurs when a company's incentive program forces recruits to buy more products than they could ever sell, often at inflated prices. If this occurs throughout the company's distribution system, the people at the top of the pyramid reap substantial profits, even though little or no product moves to market. The people at the bottom make excessive payments for inventory that simply accumulates in their basements. A lack of retail sales is also a red flag that a pyramid exists. Many pyramid schemes will claim that their product is selling like hot cakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers out in the general public.

1. Beware of any plan that makes exaggerated earnings claims, especially when there seems to be no real underlying product sales or investment profits. The plan could be a Ponzi scheme where money from later recruits pays off earlier ones. Eventually this program will collapse, causing substantial injury to most participants.

2. Beware of any plan that offers commissions for recruiting new distributors, particularly when there is no product involved or when there is a separate, up-front membership fee. At the same time, do not assume that the presence of a purported product or service removes all danger. The Commission has seen pyramids operating behind the apparent offer of investment opportunities, charity benefits, off-shore credit cards, jewelry, women's underwear, cosmetics, cleaning supplies, and even electricity.     (Read Full Article)

Gifting clubs are pyramid schemes that have participants fill out a “gifting” statement. This statement says the investor is giving a “gift” to other people in order to join. In reality, gifting clubs are illegal pyramid schemes where new members are promised money if they get additional members to join. Calling this scheme a “gifting club” is merely an attempt to make an illegal transaction look legal. Bottom line is that gifting clubs are also certain to eventually collapse. (Read Full Article)

   There are a lot of programs and Biz-Ops being promoted on the Internet that clearly appear to fall within the FTC gudelines of pyramid and Ponzi schemes. The proliferation of pyramid and Ponzi schemes make it impossible for the government to shut them all down immediately and at once, therefore it basically becomes a "let the buyer beware" scenario.

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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Philippe Moisan   Tutorial videos, sci-fi writer Excellent article, Roosevelt, reasonably written, with very good references Jul 27th 2011 21:05

Philippe Moisan   Tutorial videos, sci-fi writer I will post it on my blog, giving credits to you, of course, and I will use the APSense URL shortener so that no one sees the former title Jul 27th 2011 21:08

Tricia (Patricia) Fahrendorf    Oh Roosevelt, excellent indeed. Very good information and clearly stated. I like this very much. It gives good examples of both the pyramid and Ponzi schemes. Well Done Sir. :: clapping :: Jul 27th 2011 21:35

Luis Figueroa   Independent Entrepreneur Roosevelt as always words with light. I really like this article, and thank you for pointing out those important differences between good business and fake ones. Jul 27th 2011 21:45

Neville Dinning   Independent Consultant A well stated outline Roosevelt. This article is one that we can refer to when doing our Due Diligence on any program or opportunity. Thanks for taking the time to share it with us. Jul 28th 2011 01:12

Sean North   Business A well written, researched and a good resource article thanks Roosevelt Jul 28th 2011 01:20

Philippe Moisan   Tutorial videos, sci-fi writer This piece is the reference source I will use when in doubt about a program. Jul 28th 2011 06:31

Lynne Elliott Richards   Excellent article Roosevelt...thanks for sparking an interest in researching pyramid schemes..I found a wealth of material that I was not aware of. Jul 28th 2011 18:42

Roosevelt Evans III   Home Business Entrepreneur Hey, Cheryl, a long time member of APSense, wrote several good articles on pyramid schemes prior to mine and she was the one the motivated me to become aware of pyramid schemes. Jul 28th 2011 20:28

Lynne Elliott Richards   You have me fired up Roosevelt! I will definitely check out Cheryl's articles as well. I posted your article on Facebook and Twitter:-) Jul 28th 2011 20:30

Roosevelt Evans III   Home Business Entrepreneur Thank you ,Lynne! You are just a little Dynamo! Can't keep a Good Woman down! Jul 28th 2011 21:47

okeyaccessories   Hello, you write the article very valuable meaning. Oct 17th 2011 21:35