How to spot a pyramid scheme

A pyramid scheme is a fraudulent system of making money based on recruiting an ever-increasing number of people. An upfront fee or investment is usually required. The people who get in first make quick cash and tell their friends and family. The payments are based on an ever increasing number of new recruits. As more people join there isn’t enough money to pay everyone and the scheme collapses.

The founders of the scheme are usually very charismatic and charming. I have attended a conference in the past where it felt like a cult. The leader of the organization was dressed up in white and the new young recruits bowed and cheered as he made a grand entrance to the stage. He proceeded to narrate how he had become rich from this business and encouraged all of us to join. Our lives would never be the same if joined this business.

The members in these schemes use high pressure sales techniques to get people to join. Sometimes they border on outright unethical tactics to guilt trip you into investing. There is usually a lot of excitement and peer pressure and little room for reason and analysis.
The underlying business model, service or product is not very clear. Product and services are sold exclusively within the network and not to the general market. No one can really explain how the scheme generates income which it pays to members. Their main strategy is recruiting more people. Many times the pyramid scheme is dressed up as a multilevel network marketing scheme.

The pyramid schemes usually involves a complex service or technology which naive new members can not easily understand. A steady stream of payments is guaranteed once you invest. But of course this is not true and eventually the payments run dry. Make sure you understand clearly what you’re getting into.

These pyramid schemes are not regulated by the Capital Markets Authority and there is no redress in case of loss. Before you invest check the CMA website ( to check if the scheme is duly registered .

Despite this several people still fall for these fraudsters. Out of sheer greed and naivety many people invest their meager saving into pyramid schemes.

I hope you don’t get enticed by the many pyramid schemes around town. Remember there is no free lunch.

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