Seriously if I had a dollar for everyone that said this to me, I would be a billionaire! Yes really – a billionaire!! I came across a fabulous explanation of what pyramid schemes, chain letters and Ponzi schemes are so this is directed at existing Networkers who have difficulty in explaining to people what exactly these are and to those cynics and skeptics out there – here is a definitive explanation. If you really want to verify what I am saying – visit your local Government consumer affairs website – there will be a very similar explanation there.
So I’ll make this into a three-part blog series so make sure you read it all and feel free to print it out and use it as a resource in your own businesses. To those cynics and skeptics – hopefully it will help you to reconsider your viewpoint. My passion is in educating people to see the benefits of our industry and this is probably the most logical first step. So here we go.
Today we will investigate what exactly is a pyramid scheme/scam. A pyramid scheme or scam is a fraudulent system of making money which requires an endless stream of new “recruits” to ensure its success. Problem is, these “recruits” have to give cash to their recruiters and then enlist new recruits to do exactly the same. “That sounds like MLM to me Fiona” I hear you cynics and skeptics say. Well yes, and definitely NO! A pyramid scheme is called exactly that due to the shape of a pyramid. These scams always start with one con man at the top and he/she would then “recruit” 10 people below them and then ask those people to duplicate him/her. So 10 becomes 100, 100 becomes 1,000 and so on and so forth. Problem is you reach critical mass pretty fast and there becomes not enough people on the planet to keep it going! What inevitably also ends up happening is that 90% of the people who join the scam lose and only the people at the top win – a very, very small percentage.
In straightforward ‘schemes’, a new “recruit” is asked to pay a sum of money upfront. In this example let’s say it’s $100 to the person who “recruited” them. The new recruit then replicates this with 10 others. To keep it simple, the “recruiter” keeps all of the cash given to them. So that’s $1,000 less $100 this new “recruit” pays to his “recruiter”, so he makes $900. In order for no-one to lose money, the “recruiting” must continue on without stopping. Problem is, new sign ups will come to an abrupt halt eventually. The result of all of this – a handful of people walk away with quite a bit of money with most people losing whatever they put in. The only way that anyone can continue making money is if other people are defrauded into giving money upon a promise of receiving something in return. The language they use is deceptive and thus why it constitutes fraud and is illegal. You see, recruiting people in itself is not illegal – convincing people via deception to hand over their money is however and this is the legal meaning of fraud. Pyramid schemes/scams can never, in fact, succeed because they can never reach critical mass in terms of numbers recruited. They will eventually peter out once the high number of “recruits” start to die off. There are always plenty of people wary of these – even more so today with the advent of fraud teams and online security. There will also be someone out there reporting it to authorities to guarantee the scam’s demise. It just becomes a matter of time.
So to close out today’s discussion, if someone asks you to get involved in something that sounds like a pyramid scheme and then calls it something like an “Investor Club”, “Freedom Club”, “Gift Network” or something similar, the first question to ask is – what do I get from my investment? It needs to be something tangible like a product or service – as in a networking business. There is ALWAYS a product or service for your investment when buying into a networking business. You are paying for something. Secondly, ask who you are giving the money to. If whomever you are talking to is asking for your money directly, be worried. When you partner in a networking business, your money will ALWAYS go directly to the company first and foremost – not the person recruiting you. The company then sends a commission payment to your recruiter. Thirdly if you hear tall tales of over inflated returns such as 700% on your investment, guarantees of income and claims of “fast” money, ask more questions about how that is exactly. Fourthly, if you hear talk of the money you could make being “tax free” – ask why that is and if the response is something along the lines of “because you’re making a gift” then I would report them to authorities. And then take long and fast steps in the opposite direction. And it’s not just the vulnerable and uneducated that get involved in these scams – let’s face it, there’s a little greed in us all. Police officers, teachers, politicians, office workers and the like have been found to be involved in these. It all comes down to how slick the con man is in convincing people it’s legitimate.
As I have pointed out in my 30 Day Bootcamp – ALWAYS do your homework. Research, research, research. If you smell a rat, chances are you’re looking at one.
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