How to Determine If Something Is a Pyramid Scheme
Pyramid schemes are illegal marketing efforts where people are compensated for recruiting new members. The people who originally start the pyramid scheme generally do very well financially. However, those who join later will likely lose their investment as the pool of new recruits dries up before they can recoup their investment. In addition, pyramid schemes can be shut down by law enforcement at any time, and those who are involved may be subjected to arrest and fines.
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Instructions
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Investigate the claims of the company or the recruiting member. If there are promises of unlimited and outrageous amounts of income with little or no products to sell, claims that you must get in quickly before the opportunity passes, or a large upfront investment to make with little in return, you may be dealing with a pyramid scheme. Pyramid schemes seem similar to multilevel marketing companies, which are legitimate companies. However, in multilevel marketing, income is made from sales of products, as well as recruiting.
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Ask for all materials in writing from the company that details the activities that are necessary to produce income. If the majority of the income is derived from recruiting new members into the system, it is likely a pyramid scheme. If products are offered for sale, research the types of products to ensure that there is a market value for consumers of the products. If pyramid schemes offer a product at all, it is typically one that is either worthless on the open market or worth much less than the advertised price.
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Check with local, state and federal agencies for complaints. Call the local Chamber of Commerce, the Better Business Bureau and the Federal Trade Commission to check for complaints on the company. The Direct Selling Association (DSA) may also have information about the company. Most legitimate multilevel marketing companies are members of the Direct Selling Association. If the company is not, it may indicate an issue with how the company does business, since the DSA requires a strict set of standards to be followed to remain a member in good standing.
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Research claims of income online and call other distributors that you have found through your own independent research. Those involved in pyramid schemes will typically try to rush you into a decision so that you will not have the time to conduct research that will show that it is an illegal operation. Take your time when investing in any business opportunity. If it is a good opportunity today, it will be next week as well. Pyramid scheme promoters rely on your insecurity that you will miss out on a good deal if you do not take action immediately.
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Tips & Warnings
Most legitimate DSA companies will buy back unsold inventory. If the company does not make this guarantee, consider it a warning sign.
