The Criminal Nature Of The Pyramid Scam: Don’t Be A Victim

A pyramid scam is an unsustainable and fraudulent system wherein the victims pay to join a system that usually offers no product to be delivered. If there is a product that its members have paid to receive, only a fraction of them ever receive it. People are promised money for being able to enroll other people into the scheme, thereby increasing the number of members, or victims, of the system.

How Pyramid Scams Work

In this type of scam, people are promised to receive exponential benefits from the people that they are able to enroll to such a scheme just by making only one payment. People are usually given the opportunity to sell the same offer to other people once they have paid the necessary fee. Each sale that a person makes will result to a certain amount of profit on the original seller’s part since each transaction made involves a fee to the original seller.

It clearly shows that the success of this type of scheme is on the massive growth of its new members, but, nonetheless, the only real benefactor would be the original seller since the money only travels up the chain of people back to him or her. Unfortunately for its pre-existing members, this will only benefit them if they can get all of the people in the world to join in on the system. If not, then they will find it difficult to earn any income, which ultimately results in the loss of their invested money.

Pyramid schemes generally sell products that are sold at a price that is far greater from their fair market value. The products usually have little to no intrinsic value, such as brochures, cassette tapes, some of which only explains to people how to enroll new members to such a system. What happens is that people would buy these products in order to avail of the opportunity offered by the scheme, but the only way that they can earn any profit from it is by recruiting new members below them to subscribe to the same system. These overpriced purchases by the new recruits only end up funding the scheme instead of profiting its members and recruits.

How Pyramid Schemes Stand Out

What makes pyramid schemes different from other legitimate multi-level marketing businesses is that pyramid schemes members can only earn some meaningful income through selling their products and services to people who are enrolled in the scheme themselves. This would mean that the money in the scheme comes from the selling of products to people who are not members of the scheme themselves. The commissions from recruiting new members is the essential factor that drives people to recruit, which is reflective of the success of the operation of the business.

Penalizing Pyramid Scammers

Although regulations against pyramid schemes are still in progression, it ruled that people who induce or cheat others to partake in the direct selling by enrolling subordinate salesmen will be ordered to stop the conducts that violate the law. However, the final version of the law is still being drafted, so there are still no clear-cut laws that will enable the shutting down of pyramid scams in the country.

Laws, such as the proposed Anti-Pyramid Promotional Scheme Act of 2003, also known as the HR 1220, aims to stop pyramid schemes by defining what good MLM businesses and companies are, which is a great first step in the process to eliminate pyramid schemes. Violators of such laws are going to be punished severely and to the full extent of the law.

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