Pyramid scheme promoters will go to great measures to make the program appear legitimate, but the fraudsters use money provided by new members to pay off earlier stage investors, who are often recruiters as well. At some point, the schemes become too huge, the promoter is unable to produce enough money from new investors to compensate prior investors, and people lose money.
A pyramid scam occurs when fraudsters try to gain money simply by recruiting new members into a program, there can be only one logical outcome — collapse. Consider the scenario in which one participant is responsible for recruiting six more participants, each of whom is responsible for recruiting six further participants. To keep the plan going, you'd need more people than the whole population.
The following are some of the indicators of a pyramid scheme:
Focus is on recruitment. If the primary objective of a program is to encourage people to join for a fee, it is most certainly a pyramid scheme. Be suspicious if you are paid more for recruiting individuals than for selling products.
Claims of huge returns in a short period of time. Be wary of promises of quick profits; it could mean that commissions are paid out of money from new recruits rather than revenue from product sales.
Quick money.There is no such thing as a free lunch. You may be a victim of an illegal pyramid scheme if you are offered income in exchange for performing little labor, such as making payments, recruiting people, or placing online advertisements on obscure websites.
No evidence of revenue from retail sales. Ask about documentation, such as financial statements audited by a certified accountant, demonstrating that the company obtains revenue by selling its products or services to persons outside the program. In general, legitimate businesses generate revenue largely through the sale of products, rather than through the recruitment of members.
The Guyana Securities Council also warns the Guyanese public against the following:
DISCLAIMER
This is for information purposes only. This information should not be construed as legal advice, financial advice, tax advice, or subsititue for competent legal advice, financial advice, tax advice, or consultation.