Pyramid schemes promise a large financial return for a relatively small cost. Pyramid schemes are illegal and very risky—and can cost you a lot of money.
WHAT TO LOOK FOR
In a typical pyramid scheme, unsuspecting investors are encouraged to pay large membership fees to participate in money-making ventures. The only way for you to ever recover any money is to convince other people to join and to part with their money as well. People are often persuaded to join by family members or friends. But there is no guarantee that you will recoup your initial investment.
Although pyramid schemes are often cleverly disguised, they make money by recruiting people rather than by selling a legitimate product or providing a service. Pyramid schemes inevitably collapse and you will lose your money. In Canada, it is a crime to promote a pyramid scheme or even to participate in one.
Ponzi schemes are fraudulent investment operations that work in a similar way to pyramid schemes. The Ponzi scheme usually entices new and well-to-do investors by offering higher returns than other investments in the form of short-term returns that are either abnormally high or unusually consistent. The schemer usually interacts with all the investors directly, often persuading most of the existing participants to reinvest their money, thereby minimizing the need to bring in new participants as a pyramid scheme will do.
Be cautious, but do not be discouraged from carefully researching business opportunities based on commissions. There are many legitimate multi-level marketing opportunities where you can legally earn an income from selling genuine products or services.
REMEMBER: Pyramid and Ponzi schemes may be sent to you from family members and people you trust—they might not know that they could be illegal or that they are involved in a scam.
CAUTION: Never commit to anything at high-pressure meetings or seminars.
THINK: Don’t make any decisions without doing your homework—research the offer being made and seek independent advice before making a decision.
INVESTIGATE: Do some research on all business opportunities that interest you.
ASK YOURSELF: If I am not selling a genuine product or service, is participation in this activity legal?