Your Future Is Our Focus
Michael P. McGuire

What is a pyramid scheme?

For generations, people have run scams, often under the guise of a legitimate business, to personally profit from the unsuspecting. In many cases, scam artists make their business by promoting a service or product that either supposedly boosts the buyer’s performance in some way or gives the buyer a chance to profit off of their investment. Unfortunately for many people, there’s often no return on their investment and many of their purchases don’t give them anything special.

One of the oldest scams, theoretically going back all the way to ancient Egypt, is the pyramid scheme. The purpose of the pyramid scheme is to convince parties with a pitch that states they’ll make a large return on their investment. This scheme, simply, allows someone at the very top of the pyramid to profit from every investor below them. In most cases, investors only make a marginal return on their investment by recruiting new investors, while the person at the very top profits from everyone else’s hard work.

Inevitably, the pyramid will collapse when investors struggle to recruit new parties and more and more people find out they’ve been duped. A pyramid scheme isn’t a one-size-fits-all method and may take on different guises. Here’s what you should know:

Signs you’re involved in a pyramid scheme

Pyramid schemes have a few basic themes. The following are signs that you might be involved in a pyramid scheme:

  • You can’t place a value on a product
  • The product has an outrageous price
  • The price of a product is speculative
  • The product is a basic good with a fancy name
  • You’re required to recruit people to make a profit
  • You were promised an easy or quick return on your investment
  • You’re pushed to ask as few questions as possible

There’s no telling how many pyramid schemes are being run right now. History has seen many well-known pyramid schemes, such as the following:

  • Multi-level marketing scheme (MLM): while an MLM is a legal business program, some pyramid schemes disguise themselves as MLMs
  • Chain email: a list of emails asking for donations and to spread the email
  • Ponzi scheme: an investment con that promised high returns for a low investment

A pyramid scheme is a fraudulent investment strategy that many people get involved in without realizing the legal ramifications. If you find you’re involved in a pyramid scheme, then you may need to know your legal rights.

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