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Pyramid schemes are illegal because they claim to be in the similar business of selling products or providing services to consumers in order to look like a multi - level marketing company. It is classified as a scheme because little or NO effort is actually made to market the product or service they are alleged to provide. Instead, money is made in pyramid fashion from recruiting other people to join the program. Because pyramid schemes rely on new members to bring in money, schemes often collapse when the pool of new recruits dries up. When schemes finally collapse, majority of people, with the exception of a few at or near top, lose their money. The pyramid scheme is psychological; playing on people's greed and fear of missing good deals. Avoid programs that focus more on recruitment than on sale of product or service to end consumer. If the opportunity of income is primarily derived by recruiting participants or sales persons rather than selling product, it is likely illegal. Be skeptical of programs or claims you will make money THROUGH continued growth of commissions on sales from new recruits. Dont fall victim to high - pressure sales tactics. If you believe you are not being given enough time to research or review details, DONT sign or pay anything - go elsewhere. Talk about alleged opportunity with spouse, friend, accountant, or attorney. Do not sign contracts or pay money to participate in business opportunities without taking your time and reading all of provide paperwork.
There is no shortage of real - world instances of Pyramid scams in action. Consider these examples: Wealth Pools. Back in 2007, company called Wealth Pools International claimed to be selling foreign language DVD's through the company's network of sales representatives. In fact, the firm was really paying its sales staff to recruit more sales reps, and wasn't actually earning any money on DVD sales, making it a product - base Pyramid Scheme. The US Security and Exchange Commission wound up freezing the company's assets, but only after scam participants lost $132 million of their own cash. Fortune Hi - Tech Marketing. In this Pyramid scam, Kentucky - base Fortune Hi - Tech Marketing claims to act as third - party marketing and sales arm of DISH Network, - get Report, global satellite TV services provider, and for Frontpoint Home Security, Security products provider. In fact, individuals who buy into opportunity wind up making more money by recruiting other sales representatives than they do selling satellite television or Home Security products. According to the US Federal Trade Commission, over 350 000 were drawn into the Pyramid Scheme, paying up to $300 each annually to get the chance to lure other people into scam. Fortune Hi - Tech was forced to pay back $7. 7 million in penalties, and was barred by US regulators from future Multi - Level Marketing campaigns. Social Media Pyramid Scheme. In 2017, Pyramid Scheme bubble up on Snapchat - get Report, where online users were urged to send a one - time joining fee, pay via Snapcash, Snapchat's online cash payments site. In doing so, they promise to earn money every time new user join up and pay a fee. There was no product or service attached to scam and users. Instead, members were urged to get the word out and recruit more people - usually teenagers - to earn their cash.
Gifting clubs are illegal pyramid schemes where NEW club members typically give cash gifts TO highest ranking members. If you get more people TO join, they promise you will rise TO the highest level and receive a gift much larger than your original investment. But only a few people profit from this scheme and most people lose their investment. Organizers keep creating NEW names for gifting clubs, such as Friends Helping Friends, Women Empowering Women, Airplane, and Pit Stop, but these clubs ALL work the same way and are ALL illegal. If someone asks you TO join a gifting club, do fall for their HIGH - pressure sales tactics or stories of great earnings.
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