A pyramid scheme is a ‘business model’ that allows senior members to recruit new members. New members often pay upfront fees to the senior members who enrolled them.
As new members begin to enrol other members, a portion of the fees they are paid are sent up the business chain. These schemes can often be described as pyramid scams, and are considered illegal in some countries.
What to watch out for:
* A pyramid scheme funnels funds from those lower in the business chain to those at the top of the business chain.
* Pyramid schemes are often associated with fraudulent activity.
* Most pyramid schemes depend on profiting from recruitment fees rather than the sale of actual goods and services.
* A pyramid scheme resembles a pyramid structure because they start with a single point at the top and this point becomes wider towards the bottom.
Different types of pyramid schemes:
* Multi-level Marketing Pyramid Scheme
Multi-level marketing (MLM) is a legal business practice, but the business model involves selling goods and services. Participants are not obligated to close any sales in order to generate income. Instead, they earn income by recruiting new members.
* Chain Emails
Chain emails persuade people to donate money to everyone listed within the email. After donations are made, the donor has the opportunity to add his/her name to the list before forwarding the chain to his/her group of contacts with the hope of receiving donations in the same way.
* Ponzi Schemes
A ponzi scheme is an investment con that doesn’t always have a pyramid scheme structure. They promise high returns to existing investors by taking investment funds from new investors. Most participants end up losing their investment entirely.
Before investing in any scheme, business, or project, it is essential that you do your research. Always understand that capital is at risk. Pyramid can seem like a good idea in the short-term, but if you want to make money without the illegal ties, you should avoid these all together.
T K Williams-Nelson
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