How to recognize illegal pyramid schemes

I often do get asked how illegal “business opportunities” can be recognized. Well, I am now trying to answer this question and make it a bit clearer with the following article…

So called “Pyramid schemes” have been around since about the time the actual pyramids in Egypt were built. You’d think that in the last few thousand years people would have been able to easily recognize a pyramid scheme when they come across one. They don’t…!

The people who dream these things up, however, are pretty slick characters. A pyramid scheme never, ever, comes labeled as a “pyramid scheme”.

It is really easy to get sucked into one of these schemes. You need to understand how they work and be able to spot them for what they are. There are a few “buzz” words that can tip you off:

1. Recruit: “to engage in finding and attracting employees, new members, students, athletes, etc.” That’s one of the definitions of the word according to the dictionary.

The use of the word, ‘recruit’ (or any variation) should be a major tip off that the program that is being promoted to you is most likely a pyramid scheme. Some of these schemes can be easily spotted while others are a little harder to identify. Just beware when you see the word, “recruit”. There was a scheme that went around awhile back that was sent by unsolicited email that offered an “exclusive opportunity” to earn a boat load of money by recruiting people to sell a device that would provide access to the Internet by television. No, I’m not kidding. This happened and people fell for it.

2. Buy the secret and sell… This is a typical pyramid scheme that you will often see. This is another “offer” that arrives in your inbox that you have not solicited. You are offered an “exclusive” opportunity to buy a secret that will allow you to make a hundred thousand dollars a month (no work required) and then you can sell this secret to others for a substantial profit and they will make money for you. These gullible folks will just fill your bank account with beautiful green-backs. Wait! You are the gullible folk they are targeting.

You can believe me when I tell you that there really aren’t a lot of people out there in this world that are eagerly awaiting the opportunity to send you money.

You can also believe that there is no legitimate Internet business that is going to immediately make you hundreds of thousands of dollars a month. You might someday make that kind of money but if you do, it will be after you have put in an incredible amount of time and effort into it and not because you bought a “secret”… – there isn’t one.

Creating an online business still means hard work and if you’re not willing to accept this and are still looking for shortcuts, then an internet business isn’t for you! Better get back to your J.O.B.!

3. Let “others” do the work: This little phrase has pyramid scheme written all over it. The “pitch” is usually for a non-existent product or for a product that is being sold for much more than it is actually worth. You will often be sent information by bulk email that gives you instructions for getting others to promote this “product” (…which product?) and all you will have to do is count your millions.

Right… – Don’t fall for that one!

Disguised MLM

If you are really new to the world of internet business or work-at-home job opportunities, you may not know what MLM means. It means Multi-Level-Marketing. MLM is similar to a pyramid scheme but it isn’t exactly the same.

True pyramid schemes don’t involve the selling of an actual product but real MLM is ALL about selling an actual product.

According to a glossary of Internet terms, “Multilevel Marketing is selling products by using independent distributors and allowing these distributors to build and manage their own sales force by recruiting, motivating, supplying, and training others to sell products. The distributors’ compensation includes their own sales and a percentage of the sales of their sales group (downline).”

“So,” you say, “that just sounds like a good idea for making money.” Well, it IS a good way for making money. The problem is that it is illegal when there is no real product involved, where only the opportunity gets marketed as a way to riches and where they are talking about the money making potential only. This is what I mean by “disguised” MLM. In this case, there would be no product involved – only a business opportunity which promises people to make money without having to do anything apart from promoting the “opportunity”.

Do you see that tip-off word again: “recruiting”? The other tip-off that this is a MLM scheme is the phrase, “percentage of sales”.

There is nothing illegal about setting up an affiliate program and PAYING a percentage of sales to those who sell your products or services to others. There is nothing illegal about COLLECTING the percentages that are offered by the producers of the products or services. That is simply good business and more than just common practice in the Internet business world.

The problem arises when you start COLLECTING percentages of sales from people whom you have recruited to sell the product. Then another level is added and it becomes multi-level marketing.

Even with just one additional level, it could be identified as MLM even though completely legitimate affiliate programs often have 2 levels as well (that’s why you can’t use Paypal to pay for products which involve more than 1 affiliate level – they see almost everything as MLM even though in many cases it’s not! They probably want to be on the safe side and not get associated with ANY MLMs.) but there are MLM schemes that will have many, MANY layers.

The main Internet banking and money exchange on the Internet is Paypal. Paypal employs full-time personnel to search for and identify MLM schemes. When these schemes are uncovered, the accounts (and all attached accounts and credit cards) are frozen.

Yes, it is true that sometimes Paypal does misidentify a perfectly legitimate business as a MLM scheme but it doesn’t happen very often and the problem can usually be resolved in just two or three business days. This very thing happened to a friend of mine not long ago. It was resolved but not without him being able to prove that his business was not a MLM scheme.

This does point out the fact, however, that there are those who are looking for illegal MLM schemes. You may think that you are very anonymous on the Internet but when you do business on the Internet, you are no longer anonymous.

Beware of Lions

There are a lot of big hungry lions in the Internet jungle. They are looking for easy marks… they love “newbies” best of all… You have been warned!

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Let me know what you think about these illegal opportunities and what your personal experiences are by making a comment on this post – I’d love to hear from you!