How to Spot a Pyramid Scheme
How to Avoid a Pyramid Scheme
If you are like most people in society, you have the desire to make money. You may look to investing as an option to do this. When you know very little about investing, you may get sucked into scams. One of the most prevalent scams out there is the pyramid scheme and it can be disguised in many different forms. You need to beware of these schemes when investing.
Knowing the Ear-Marks of a Pyramid Scheme
Look out for promises of high returns in a short period of time.A pyramid scheme is a hierarchical investment scheme. It starts off with one person who recruits a few others to invest in a variety of different schemes. They in turn recruit other investors. The new investors are promised a high payout on their investments.
- Check to see how the investment has done in the past. If they don't give you information, or the information you get can't be verified, that should tell you that the investment is no good.
- Ask if you can speak to other investors. If the answer is no, they are probably hiding something, and you should walk away from the investment.
Examine whether a genuine product or service is being sold.Be wary if you are approached with an opportunity to sell a product such as a mailing list or reports. They are only useful as products for other people who get recruited into the pyramid to buy in order to qualify to be a member. This is the hallmark of a multi-level marketing pyramid scheme.
- The only true customers would be those people who are recruited to sell. As stated, they will most likely have to buy a certain amount of the product to get into the pyramid and to sell themselves.
- Make sure you don’t have to recruit anyone else to make a profit.
- You should be able to sell a product that many people will buy and use such as home goods, makeup or cleaners.
Ensure the emphasis isn’t on recruiting.Many pyramid schemes recruit people, and their investment is disguised as a gift. They are promised money from the gifts made by people they bring on board.
- Giving a gift is not illegal and thus can be done at any time by anyone. This is why this scheme is so popular and you may become a victim of it.
- As with other pyramid schemes, gift giving eventually breaks down when not everyone can make a profit.
Know where and how your money will be invested.There are people out there who will get you and others to hand over money promising to invest it for all of you. These people don't actually invest your money. They may pay you a little money to keep you happy, or they may not. If they do pay you or some of the investors money, it can come from any source. Usually they pay older investors with money from newer investors. This is called a Ponzi scheme.
Keep track of how the investment is doing.As an investor, you should not only know who will invest your money and how, but you should also keep track of how the investment is doing. You should ask for documentation of the investment. If they don't give it to you, it is a sure sign you probably won't be able to keep track of it and that it is probably a scam.
Determine if the investment seems too good to be true.If it seems to be, it probably is. A good question to ask yourself is, "If this is such a great opportunity, why are they spreading it around instead of keeping it to themselves?" Ironically, in the case of a pyramid scheme, initial investors actually do stand a chance of making money. It's the later investors who are usually hurt.
Beware if you are promised high returns.While there are legitimate opportunities to make high returns, you need to beware when you are guaranteed this. No one can accurately predict how an investment will perform.
- Back away when you are being pressured to invest by this type of lure.
Don't invest when you are told there is little or no risk.There is an element of risk in all investments. A legitimate sales person will let you know how the investment has performed in the past. One who is trying to take your money will use any tactic to get you to invest. Steer clear of investments when the risks are severely downplayed.
Be cautious when you are told it is a once in a lifetime opportunity.People want to create a sense of urgency to get people to invest. If you make someone believe they will miss out on something huge, if they don’t act quickly, you can get them to invest. When you are confronted with this type of sales technique, take a step back and ask yourself, “How often is something truly a once in a lifetime opportunity.” The answer is, almost never. Never invest when you are promised the investment is this rare.
Analyze the prospectus.The SEC requires that all companies selling securities provide potential and existing clients with details of how and where the money will be invested. Prospectuses typically list historical returns of the investment.
- Make sure those returns have been verified by a neutral third party.
- Check the information you get from a salesperson with a reputable accounting firm. They will able to recognize a pyramid scheme very quickly. Then you can avoid it.
Ask about the exit strategy before you invest.Many people become excited about the prospect of investing money. They hurry to get in so that they can lock in the "big returns" they're afraid they'll miss. However, every good investor knows not only how to get into an investment but how to get out.
Make small investments.Even smart investors get duped. To avoid a pyramid scheme meltdown of your assets, invest small in many different investments. This is called diversification, and it can help reduce the impact of fraud. This is because you will not have invested heavily in a pyramid scheme should you fall victim to one.
- You should never place more than roughly five per cent of your savings in a single investment.
- Also, invest in a variety of industries and different forms of investments like stocks and bonds.
Protecting Your Investment
Check to see if a product is registered.Many bad investments involve unregistered securities. These include stocks, bonds, hedge funds and more. Do your research. In the U.S., you can check with the Securities and Exchange Commission (SEC) to see if something is a registered investment. The contact information is as follows: North American Securities Administrators Association or (202) 737-0900. You can also check the website at: .
- Ask the promoters of an investment if they are licensed to sell that type of investment.
- Contact a state commission office, a state's Secretary of State, a Corporations Commission or Securities Commission.
- A business should be registered with one of these entities.
- Stay away from investments with no documentation. That is a sign that it may be unregistered.
Avoid pushy salespeople.If a person is pressuring you into investing as soon as possible, beware. It is not common practice for legitimate brokers or other people who help investors to be aggressive in their sales practices. People who push too hard may have a hidden agenda.
- Remember to be cautious when considering any investment.
- Once you give someone your money, you may not get it back.
Check for a criminal record.Make sure the salesperson and the company or firm he represents have never had any problems with criminal activity. Make sure both have a clean record. You don’t want to be involved with people or companies that don’t have a good reputation. They have not done business “by the books” in the past, they probably won’t when it comes to handling your money.
- Remember that people operate under aliases. It is important to find out someone’s true identity.
Take note when the investments of others are mentioned.Do not trust the claim that a number of seemingly reputable people have already invested money. This is a tactic used to get you to feel that you can invest safely because others have already done so. People who use this tactic will also tell you that these people are making money off of their investments.
Pay attention to offers to do something to get you to invest.Here, an offer of a favor like selling to you at a lower price is made in exchange for you to buy now. You need to ask yourself why someone would be that desperate to get you to invest. Using this tactic is a sign that the sales person is only interested in getting you to invest and does not want you to walk out the door without doing it.
Do not fall for the urgency tactic.When you are made to believe that "there aren’t enough" spots for investment to go around, red flags should go up. The urgency created by this tactic is meant to get you to invest quickly. Remember, unscrupulous salespeople will use any tactic to get your money. When you hear that there just isn’t enough investment opportunities for everyone, that is a sure sign that someone is trying to defraud you.
Be suspicious of someone claiming to be of significant importance.This person will make statements like, “As the CEO of XYZ, I can assure you the investment is sound.” This tactic is called “the source credibility tactic.” The idea is to create a sense of credibility so that you will trust them.
- Remember that it isn't wrong to let people know that you are high up in an organization. Many legitimate people do this for the credibility it gives them.
- Be cautious if the person seems to be overly relying on these claims or pushing you to invest.
- Research the person to see if their claims are genuine.
QuestionIs ACN a pyramid scheme?Top AnswererNo. It's a very complex organization, and it looks like a "pyramid," because it is multi-level. It's a legitimate business entity with plenty of critics.Thanks!
QuestionIs Melaleuca a scam or not?Top AnswererNo. It is a multi-level-marketing organization, and that in itself is a problem, but it's really not a scam. It's just controversial.Thanks!
QuestionIs Bitcoin a pyramid scheme?Top AnswererThanks!
Is the Leo coin company a pyramid scheme?
Are Kyani products a pyramid scheme?
How can I tell if a company is a pyramid scheme?
How can I tell if something is a pyramid scheme?
- Ask the person who is selling you the product if he has invested in it himself. Watch and listen to his answer closely. Don't buy anything from someone unwilling to commit his/her own money.
- Report the fraud. If you feel you have become a victim of a pyramid scheme, you can report the criminal activity. Tips or complaints should go to: FINRA Complaints and Tips 9509 Key West Avenue, Rockville, MD 20850, Fax: (866) 397-3290.FIRNA is a non-profit organization and not a government agency.
- Pyramid schemes are illegal in most countries. If you invest, you may be able to take some action against the fraudsters, but you probably won't get your money back.
- This type of scam may be attractive to you because you are assured of its legality and promised a great deal of money. Make no mistake, however, eventually the money will be gone and you may be one of the ones who loses all the money you put in to this scheme.
- Bottom line advice: If you're not an investor with a great deal of experience under your belt, don't hesitate to seek help in evaluating investment opportunities. If you even suspect an offering might be a pyramid, consult with the most financially-savvy person you know before you hand over any money. If it really is a pyramid, your money will disappear and never come back.
- Be wary of throwing good money away after a bad outcome on your investment. Many pyramid schemes suck the lower-level investors dry by asking them to invest "just a little more money" after a loss. Because people feel an emotional connection to their original investment, they may be willing to put more money into the pot if they're told it will help their chances of coming out ahead. If it's really a pyramid scheme, however, this will only make losses worse.
Video: Avoid Multilevel Marketing Schemes | BeatTheBush
Packing Tips and Tricks
Cheese and Ham Red Wine Risotto Recipe
How to Get Rid of Ants in the Kitchen
How to Stop Your Pet from Licking Lotions and Creams
11 Signs Your Headache Is Actually a Migraine
5 Sneaky Health Hazards That Are Lurking In Your Medicine Cabinet
How to Show Off the Blue Vibes in Your Nail Designs
How to Cleanse Your Colon for a Colonoscopy
10 Unexpected Things That Need Spring Cleaning
Does this mean people can see if you’ve viewed their Facebook profile
How to Make a Taoist Altar