In the classic "pyramid" scheme, participants attempt to make money by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returnsin a short period of time for doing nothing other than handing over your money and getting others to do the same.
The fraudsters behind a pyramid scheme may go to great lengths to make the programlook like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay offearly stage investors. But eventually the pyramid will collapse. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and manypeople lose their money. The chart below shows how pyramid schemes can become impossible to sustain:
Pyramid schemes are illegal in many countries including Albania, Australia, Austria,Brazil, Canada,China, Colombia, Denmark, the Dominican Republic, Estonia, France, Germany, Hungary, Iceland,Iran, Italy, Japan, Malaysia, Mexico, Nepal, the Netherlands, New Zealand, Norway, Philippines,Poland, Portugal, Romania, South Africa, Spain, Sri Lanka, Sweden, Switzerland,Taiwan, Thailand, Turkey, United Kingdom, and the United States.
The big difference between multi level marketing and a pyramidscheme is in the way the business operates. The entire purpose of a pyramid scheme is to get your money and then use you to recruit other suckers (ahem - distributors). The entire purpose of multi levelmarketing is to move product. The theory behind multi level marketing is that the larger the network of distributors, the more product the business will be able to sell.
Pyramid Scheme AlertUpdates
PSA Updates offer news, analysis, alerts, and insights into worlwide frauds involving multi-level marketing and pyramid schemes. Updates are free. The email list is never shared. Some links...
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