How To Spot a Pyramid Scheme

11/30/2015


Pyramid schemes are unsustainable businesses that require you to recruit other members to recover your joining fee.

Scheme members are asked to sell goods or services through other members rather than direct to clients.

People at the top of the pyramid make money from the fees of people lower down, rather than selling a legitimate product.

The business model is unsustainable and those at the bottom of the pyramid lose their fees with no prospect of recovering the money.

Here Are the signs:

Goods and services not key
There are generally no goods or services that are sold for profit, or there is a by-product that is used as a smoke screen. The by-product is not the main source of income for the scheme. A pyramid scheme sustains itself on continuous recruitment.

Very high risk
Pyramid schemes offer very high returns. These are normally higher than any registered bank or authorised financial services provider. The risks are also higher, but this is obviously not explicitly communicated.

No advertising
In many instances pyramid schemes will not advertise themselves openly. They rely mostly on word-of-mouth recruitment, and presentations with too-good-to-be-true offerings.

Not registered
They are not registered with the FSB or the Sarb, and are not authorised financial services providers. The initiators are not accountable to anybody and can disappear at anytime.
Proof of investment Participants of pyramid schemes do not have any documentary proof of their investment. The word investment is used to lure people and is basically a cover-up for a joining fee.

Source: National Consumer Commission

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