You’ve probably come across them before: your friend or neighbor is telling you about this amazing opportunity to make a huge amount of money and you barely have to do a thing. In most cases, all you have to do is work from home and put out some online ads; in other cases, you only need to convince your friends to also invest. The investment they’re selling you, after you prod them for a while, actually isn’t selling a physical product, per se, rather all it needs to make money is for you to recommend others to buy-in, and also invest.
Pyramid Schemes
No, you haven’t missed out on some once-in-a-lifetime opportunity that will make you hundreds of thousands, or even millions of dollars with absolutely no risks. Why? Because it is too good to be true. The greater the return, the higher the risks (especially for the sums they’re telling you). What your friend or neighbour is selling you is a pyramid scheme – and it’s illegal. A pyramid scheme sells you the idea of a rich lifestyle, but in order to join you have to “buy-in” by paying for some product, sales material, or seminar. Then you realize, the only way for you to make money is by recruiting other people to also buy-in to the business. You’re not actually selling a product, but encouraging others to buy-in, which then makes you money. It’s a literal pyramid. The ones at the very top (those running the actual operation) make millions as people join thinking they’ll get rich as well, but those at the bottom almost always lose their money or barely break even (if they’re lucky).
It doesn’t end there. What if you recruit enough people to make commissions that cover your initial buy-in? Well, that probably won’t happen because in order to remain a part of this “amazing” business opportunity, you have to keep buying from them. Eventually, you’ve spent thousands of dollars, and barely made cents on the dollar (if anything). Fortunately, such practices are illegal, as pyramid schemes violate federal securities laws. The US Securities and Exchange Commission (SEC) investigates allegations of such frauds and, in some cases, criminal charges and prison time can be real endings for those operating the pyramid from the top. Therefore, when presented with any business opportunity, ask questions. Demand to see the paperwork and to receive a real understanding of what the product is and the commission structure.
