How does this scam work?
You may hear about a pyramid scheme from friends, family or neighbours. Usually, pyramid schemes recruit members at seminars, home meetings, over the phone, by email, post or social media.
In a typical pyramid scheme, you pay to join. The scheme relies on you convincing other people to join up and to part with their money as well. In order for everyone in the scheme to make a profit there needs to be an endless supply of new members. In reality, the number of people willing to join the scheme, and therefore the amount of money coming into the scheme, will dry up very quickly.
Some pyramid scheme promoters disguise their true purpose by introducing products that are overpriced, of poor quality, difficult to sell or of little value. Making money out of recruitment is still their main aim.
The promoters at the top of the pyramid make their money by having people join the scheme. They pocket the fees and other payments made by those who join under them. When the scheme collapses, relationships, friendships and even marriages can be damaged over money lost in the scam.
It is against the law to promote or participate in a pyramid scheme.
- You are offered a chance to join a group, scheme, program or team where you need to recruit new members to make money.
- The scheme involves offering goods or services of little or doubtful value that serve only to promote the scheme, such as information sheets.
- There are big up-front costs.
- The promoter makes claims like ‘this is not a pyramid scheme’ or ‘this is totally legal’.
- Do not let anyone pressure you into making decisions about money or investments - always get independent financial advice.
- Be wary of schemes or products that claim a guaranteed income.
- Consider whether the rewards you have been promised are dependent on product sales. If so, are the products of real value, sold at a reasonable price and something that there is actually consumer demand for?
- Remember that family members and friends may try to involve you in a pyramid scheme without realising that it is one.
- It is against the law not only to promote a pyramid scheme, but to participate in one.