Pyramid Schemes

fact

The following tips are designed to help you identify and avoid this type of scheme:

  • Ask yourself two questions before investing in any money-making scheme you see on the Internet or receive by e-mail. To determine if it could be a pyramid scheme, you should ask:

    1. Does the product or service you are selling have an actual value, independent of the program? In other words, would you be willing to pay the price charged for the product or service if it were sold on its own?

    2. Does the program focus on the actual sale of the product or service, or on the recruitment of new people into the program?

  • Beware of plans that have a substantial start-up cost--that is, plans that require you to purchase a high-priced inventory. Some pyramid schemes pressure you to pay a large amount of money to become a "distributor." Find out if the company will buy back your inventory; legitimate companies will buy back inventory at a percentage of the original cost. Get all promises in writing.

  • Find out if there is demand for the product or service and if there are similar products or services on the market. If so, how well do they sell? If it seems that a promoter is making most of his money by selling distributorships or large start-up inventories to new recruits, stay away.
  • Beware of plans that promise enormous earnings or claim to sell "miracle" products. Claims by the promoter as to the validity of such products may not necessarily be true. Ask the promoter for hard evidence to back up his claims.
  • Be cautious about "shills"– paid references that the promoter uses in order to describe fictional accounts of success in earning money based on the plan.
  • Do not pay or sign any contract in an "opportunity" meeting or any other high-pressure situation. Take your time to make a decision. Discuss it over with a spouse, friend, lawyer, accountant, or any other third party who is not involved in the business.
  • Do not invest simply because the people selling you the program or plan are friends or part of your religious or social organization. They too could have been misled into thinking that they could make large amounts of money by participating in the scheme
  • If you are still in doubt, contact your local Better Business Bureau and state Attorney General about any plan you are considering, especially if the claims about your potential earnings or the product itself sound too good to be true.