How to Spot a Pyramid Scheme
Pyramid schemes, or multi-level marketing systems, work by promising prospective investors that there will be large gains on their initial investments from the recruiting of new members, as opposed to the sale of items or services, according to the Federal Trade Commission. People across the United States and around the world have lost untold millions of dollars in these fraudulent business ventures, but there are signs to look for that will help you recognize whether a business is a pyramid scheme or a legitimate money-maker.
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Instructions
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Avoid businesses that have an initial large start-up fee. This fee will many times go toward the purchase of a product that you never receive or large amounts of a product that you are overcharged for and the scheme operators never intend for you to make a profit on.
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Inquire if the company will offer a cash-back policy or will guarantee any products that are left unsold. If the company will not buy back any unsold merchandise, it might be a pyramid scheme.
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Avoid a business venture that is constantly pressuring you to recruit new members. The way a pyramid scheme makes its money is by taking money from new recruits, not by the sale of any product or service.
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Ask the company's representative for its business plan, any sales literature or proof of profit. If the company is unwilling or unable to provide this information, it might be a pyramid scheme.
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Contact the Better Business Bureau. There could be information about the company and complaints filed by other victims of the pyramid scheme.
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