MLM business v/s Pyramid scheme - A complete guide!

MLM business v/s Pyramid scheme - A complete guide!

Nikhil Ravindran
14 Sep, 2019

Getting involved in a scam and losing a fortune of money - How terrible that will be? The business world is often met with such instances and people get easily cheated with such mesmerizing offers. Just like the definition of money - ‘money is what money does’, people love to earn in the simplest ways, this particular part is well explored by the scammers and boom, you’re trapped in a pyramid scheme!

It’s time to know what exactly a pyramid scheme is and become aware of such traps.

BurnLounge scam

BurnLounge, Inc. was one of the US-based multi-level marketing companies that offered visitors to buy music and then resell it on their personal webpage. The customer needs to pay a subscription fee to enroll in the music store and then sell music to earn commissions.

Commissions are not paid as real money instead, customers can redeem their sales as BurnLounge products. They can also redeem it in terms of real money with additional fees. More people joined the business intending to make more money and own a music store with the best selling opportunities.

They even tagged the business as ‘concentric retail’ and after two years of launch, in 2006, 30,000 people joined the business deal and it was burning hot in those times. This insane run was later interrupted by FTC as it involves lots of money and the rules are not followed by BurnLounge.

The business comes under the section of ‘violation’ as there involves more money as participation fee than the product fee (selling music). It was more like inventory overloading, one of the indicators of business being fall under ‘pyramid scheme’. As per FTC, the two major indicators of this scheme are inventory loading and lack of sales.

BurnLounge was then faced under trial and declared as a pyramid scheme after 10 years (2014). The victims have lost a lot of money by enrolling in business, the verdict came in the final session during the scam declaration, around 52,099 checks are dispatched to the victims with a total sum of $1.9 million.

Even though the company has launched with a tag of multi-level marketing or MLM business, they finally skid under the shades of a pyramid scheme. A scam where no customers realized it’s true colors and lost money!

In short, ‘a pyramid scheme can be defined as an illegal business scam that offers attractive returns to customers with high joining or subscription fees and concentrates more on recruitment than sales, in fact, sometimes there won’t even be a product to sell.’

How is a legitimate MLM business different from a pyramid scheme?

Unlike pyramid schemes, MLM or Multi-level Marketing does have the following factors,

  • Business comes with a comparatively low joining fee
  • Focus more on selling part instead of recruitment
  • A balance is kept between introducing new members and the sales made by them
  • Commissions are paid on both above terms
  • A real product is available for selling
  • The business will follow the rules provided by FTC without fail
  • Commissions are paid regularly in times and provide members with additional bonuses as motivation for their effort

These ‘filters’ help one to identify a legitimate business at the initial inquiry, additionally, there are other signs to differentiate the business from such scam’s.

  • Providing an accurate company or organization information for public availability
  • Right product information is provided on the official website, offering genuine attention for the visitors
  • The initial joining kit is offered to the distributors after joining in with a package (low cost)
  • The joining kit contains the necessary marketing tools like samples, catalogs, flyers, joining forums, etc.
  • There are actual policies exists to follow for the distributors explaining every aspect of a business network
  • The organization follows consumer protection rights and enables product guarantees
Few questions to ask before joining a direct selling or MLM company

Well, there are many ways to catch-up in this scenario, a Q&A list can help you to solve this issue.

  • Is the initial fund or payment in high terms or high joining fees?
  • Will you get back at least 80% of your money back if the products are unsold?
  • Does the organization emphasis more on recruitment rather than product selling?
  • Are they not interested in consumer care?
  • Is business just focusing on the money chain without any guarantee?
  • Aren't there any regulations to follow?

MLM can be defined as ‘a business model followed by many product selling companies to market a product and reach them to the end-users who can be tagged as the customers. Later on, customers are converted as potential distributors who sell the products to other people by earning deserved compensation.’

The process of the business model flow looks like,

Business Flow

The above flow diagram tells you exactly how this MLM part works and how things work easily.

Just like the depicted flow diagram above, you have the product in your hand and it's time to make a plan to form a good sales idea. Then analyzing the current marketing strategy using research, observations, case studies, proper dig-ups from various sources, etc. This is the best way to create a strategy and in this manner, a marketing business model can be developed.

Now, entering into the MLM world to develop vast opportunities and create an excellent channel to circulate the product. Now that you have decided to get in, it's time to choose an MLM or marketing plan! A marketing plan does carry a complete outlay or structure of how marketing has to be done i.e., how does compensation structure be molded? The arrangement of the network and more questions are solved here in this part.

There are various compensation plans available in the MLM world like a binary plan, uni-level plan, matrix plan, etc. Choose one among the plan that suits your business requirements.

Now onto the next part where the marketing plan is analyzed and then to the part for employing the sales force. This part has to be linked with a proper connection within a local network as well as across the globe. Plan a commission rate and all other stuff and that's it with the combined effort, your brand name will be there at the top. An MLM Software is usually implemented to take care of this part (Well, we recommend Epixel MLM Software, a premium package to manage the entire business from a single dashboard)

Case studies & different models/types of pyramid schemes

We shall proceed further with certain case studies that provide you enough data in differentiating a genuine business with a pyramid scheme.

Using the following case studies we may come to an inference that answers many questions like,

  • How an MLM business becomes illegal and tagged as a pyramid scheme?
  • Why did people fail to identify the scam?
  • The unidentified point of scam missed by customers in the above scenarios
  • Proper explanation about why pyramid schemes are still difficult to identify

We shall discuss further after going through the case studies and different types of pyramid schemes.

Fortune Hi-Tech marketing:

One of the early scams of the 21st century and considered as a scam that involved taking advantage of three major brand products without the product providers' awareness.

Fortune Hi-Tech Marketing (FHTM) was founded back in 2001, in Lexington, Kentucky by Thomas Mills and Paul Orberson. They launched their products in the form of multi-level marketing, the products include various retail services and products. Customers can join in using a signup fee of about $99 to $299.

The business model too matched the ‘legitimate’ tag - compensation is provided for selling and additional bonuses for new recruitment. Everything looks balanced but with a low compensation rate of around 0.25% to 1% of commissions. The products for sales include mobile phones, dish network, hair care products, etc.

FHTM tied up with AT & T, Dish network, and Sprint and used their brand names for marketing purposes without their knowledge.

In 2010, about 95% of representatives just earned less than 3,100 per year and 29% among them earned purely nothing!

“Commissions are paid in high values for recruitment rather than for the distributor’s sales with a high joining fee.” this statement was so true that in 2013, FHTM was declared as a pyramid scheme. The company finally settled the dispute by agreeing to pay an amount of $7.75 million to its former customers or the victims of the scam. FTC and state of Kentucky were involved in the scam and finalized such verdicts to make sure the victims receive the much-needed settlements.

  • The statement that highlights the high joining fee and more commissions for recruitment makes the business illegal.
  • People couldn’t identify the scam as it more relied on MLM terms and manipulated as if the business was following a balance between sales and recruiting compensations
  • There were two missing signs came unnoticed during its time being and they are high joining fee & low commission rates
  • Even though there were signs of a pyramid scheme people became customers and then distributors
  • The tied-up companies never felt like their products are misrepresented in a scammy marketing scheme

Lack of study about the commission skeleton structure, unawareness of tied-up companies & pyramid scheme guidelines.

United Sciences of America:

A Texas-based company launched with celebrity attention and came with a revolutionary idea that changes the phase of many deadly diseases. The products involved in this business include nutritional supplements manufactured by United Sciences of America - ‘Master Formula’, ‘Calorie Control Formula’, ‘Fiber Energy Bar’, and ‘Formula Plus’.

Their products were even endorsed by various celebrities. They even marketed the products by 1,40,000 distributors. The nutrition products they offer prevents cancer, AIDS, arthritis, alcoholism, and heart diseases.

The business even had a phase with rapid growth in 1986 and around 10,000 new distributors joined into the business. After a while, in 1986 the most promising business began to show the real face and it’s not good!

At first, commissions to be paid regularly to distributors stopped. Then the checks started to bounce back, later on, lawsuits asked the United Sciences of America (USA) to change the marketing plan and sales claims.

With false advertisements and spammy materials, the USA has finally been tagged as ‘pyramid scam’.

  • The main cause of tagging the business as a pyramid scheme is nothing but the money distribution methods
  • Money from new distributors are used to pay commissions to distributors who are joined before them
  • The scam identity was hidden because of its nature, the idea was too innovative and looked helpful to the entire world
  • The celebrity endorsement increased the chances of acquiring more customers and the trust part kicked in with this instance
  • A new lesson has been learned from this USA scam and call it as yet another sign of pyramid scam
CKB scam

A $30 million pyramid scam considered a deadly business deal that affected the Chinese community in full thrust. The five scammers - Wen Chen “Wendy”, Cheong Wha “Heywood” Chang, Chang’s wife Toni Chen, Chih Hsuan “Kiki” Lin, Dalian “David” Guo are behind the scam.

Like the five scammers, the scam is spread under five companies operated under them - CKB, WIN169 Biz Solutions Ltd, CKB168 ltd, and Cyber Kid Best Educational ltd.

The ‘product’ as per their business offering were web-based educational courses made especially for children. However, the business moved forward without focusing on product sales, everything was based on an investment point of view.

Investors achieve Profit Reward Points (PRPT) for an investment of $1,380. This value increases once the investing amount from new investors get increases.

What if the customer needs more benefits? They have to convert PRPT’s into stocks of the company and gain more benefits during the public IPO.

No benefits can be gained if no new investments are born in the business. However, SEC charged complaints on the business and finally, came to a verdict - ‘it’s a pyramid scam’!

  • The scam initially came into existence as a legitimate business with a product -children’s educational courses
  • However, investors were drawn more into business rather than checking whether the courses are sold to new customers
  • The pyramid scam after the initial promises turned out as a ponzi scam which usually explores the investors
  • Still, a fact is unknown to the lawsuits - How did a thousand people become investors and lost a good deal of money?
  • The signs of a pyramid scheme were there in front of them and still, they couldn’t identify it properly

Finally, we will wrap up the case study session with a Ponzi scheme example.

Charles Ponzi fraud scheme:

One of the instances that depict a Ponzi scheme is the “Charles Ponzi fraud scheme” that happened back in 1920. Yes, not many have heard about the incident and FTC (Federal Trade Commission) mentions it as an “infamous” incident.

Charles Ponzi comes with an investment scheme and it offers 50% returns to the investors for 45-90 days. How did he manage to provide a deal of this high return? His allegation regarding the deal was that he could earn about 400% by trading the PRC coupons issued by the Universal Postal Convention. However, after WW1, his plans went south and he never disclosed that information to the investors.

He still happened to collect the money from the investors and to give additional attraction, he paid a 50% return to the initial investors. This dragged new investors in with a high return motive in a quick period. As many people began to invest, Mr.Ponzi became rich in no time and bought a house in the best part of the town and then he bought a big part of the minority interest in his local bank - Hanover Trust Company.

Meanwhile, as the days progressed, things began to unwrap and they realized the fact that they’re getting cheated. He began to overdraw his accounts at Hanover Trust and the banking commissioner ordered to stop collecting the Ponzi checks. A few days later, he was arrested and owed about $6 million to the investors. Never forget that this owe of $6 million was in the first quarter of the 20th century and what might its value in 2019?

He served prison time for more than 10 years and this is how a Ponzi scheme differs from a pyramid scheme. There won’t be any commissions provided for sales of member recruitment, just the investment, and only the potential returns!

  • First of all, this scheme arose back at the beginning of the 20th century and people are unaware of such fraudulent schemes
  • 400% returns’, this attracted everyone and was the finest sign to filter out a Ponzi business
  • Paying 50% money to the initial investors attracted new investors and created a sign of ‘trust circle’ to them

Thus there is a relation between a pyramid scam and a Ponzi scam. There are similarities among the two types and the major difference between the two is,

“A Ponzi scheme is an investor fraudulent scheme where the investors are fallen for attractive return marketing pitches, as it turns out, the scheme will be a fake promise. Whereas, a pyramid scheme requires investors or the so-called distributors to recruit more people to the network and not concentrated in product selling.”

That’s it about the case studies and we have come down to the inferences that gave proper explanations about the queries. The signals and indicators of a pyramid scheme were there in front of them but still unable to identify them properly.

We shall now find the different models of a pyramid scheme and thereafter explaining with proper facts.

Airplane Game (Eight-ball scheme):

Eight-ball scheme is one of the pyramid scheme models that has been around from the beginning and considered as a scammy model. Eight-ball is the basic model from which the airplane game derived from.

If a member fell for this scheme then that member has to sponsor 2 members, the new users need to sponsor 2 more members each and finally, the new members have to recruit more. The business structure looks like,

4 Tier tree
  • Sponsor - tier 1 (1 member) - R
  • Two new recruits - tier 2 (2 members) - R1 & R2
  • Four new recruits - tier 3 (4 members) - R11 &R12, R21 & R22
  • Eight new recruits - tier 4 (8 members) - R111 & R112, R121 & R122, R211 & R212, R221 & R222

15 people together create a network and R gets the return. This might be the easiest tier level to earn commissions and the probability to earn starts to diminish downwards.

Airplane Game Scam

In the airplane game, the first level member is called a ‘captain’, the next tier as ‘co-pilots’, the third tier as ‘crew’ and finally, ‘passengers’. As per the structure of the business, the passengers need to recruit members into the network and finally achieve the captain position. Then the game gets over but what about the other passengers? Will they ever achieve the desired target?

No never! That’s the reason for calling this scheme as a scam and there is an explanation about how a model ends up in other planets population, strange thing, right? If the member line-up in a business network exceeds the population of our earth then where else can we find new members? We need some extraterrestrial help to find new members and for that, scientists need to work on those things quickly.

Wonder how we came to such a jaw-fall conclusion? Let us explain its reason using a mathematical calculation in the next section and then we will introduce you to a pyramid scheme calculator.

We’ll cover one more similar models briefly before checking the mathematical explanation.

Chain letters:
Chain Letters

Chain letters are one of the oldest pyramid scam models that existed by exploring the ‘spread of words’ process. There won't be any real product to sell, then how such a scam spread across the community of people?

Like the name, the main cause is nothing but a letter or a paper of some offers that spreads from one person to another and is replaced by emails once the technology grew up. Someone from some unknown locality or source creates a fake letter that contains an offer or requesting money for an unknown or false cause. It might contain information like,

  • Exploring emotional mojo to people who are in the devotional path
  • Attractive offers to earn good returns
  • Taking advantage of superstitions

People who receive such letters need to pass it on and on. They will eventually find no one at the end and it’s just like exploring a vast number of people in the 8-ball scheme.

With the arrival of electronic mail, instead of losing money in investments, attackers gained access to the receiver's online accounts directly. Are these chain letters a part of the phishing attack process?

It looks like it, chain letters are pathogens of such attacks. A chain letter is sent to the customers with attractive offers or the random message that says ‘Pass it onto 20 people and it brings good fortune for you and if ignore you will have bad luck then on.’

You must have come across such a message in your life and have ignored it. But there are people like mentioned in the above three bulletins, they become victims and eventually clicks on attacking links attached inside the mail content and boom, you’re hacked! Attacks can be made using this scheme.

Likewise, there are many other models like the 2 Up system where the members won’t receive products that value near the joining fee. This reason made the 2 Up system tagged as a pyramid scheme.

The mathematical explanation:

Here is a mathematical explanation that establishes the eight-ball scheme as a pyramid scam. Here 87.5% of people involved in this scheme will lose their money and lost in the world of emptiness.

Mathematical Explanation

Source: mathmotivation.com

The calculation is done for the last three levels of the system and to prove they will end up in the state of losing money.

What about the explanation about adding people even more than our population. Consider a scenario where a new scheme comes up from a company. The member looks the same as that of the 8-ball model and pays &2 as a commission (assumed figure).

TierSponsored member in a specific tierTotal members in the networkCommissions paid (1 user = $2)Total commissions paid
01122
12346
247814
38151630
416313262
5326364126
664127128254
7128255256510
82565115121022
9512102310242046
101024204720484094
112048409540968190
1240968191819216382
138192163831638432766
1416384327673276865534
15327686553565536131070
1665536131071131072262142
17131072262143262144524286
182621445242875242881048574
19524288104857510485762097150
201048576....2097152....

Here at the final tier or level (20th), there exist more than one million members in the whole network. How the members in the final tier or downline will get paid? For that reason, we have to find life from other planets!

Pyramid selling - The compensation structure explained!

To be frank, there isn’t a proper compensation structure that exists in the direct selling model and for better understanding, we have depicted a structure to easily understand who are all exploring the opportunity and who faces a huge loss.

The structure looks like,

Pyramid selling

The upper levels i.e., those who joined during the beginning will get the promised returns and they’ll be beneficial of the deal. Watching them earn makes the so recruited team or new members try their luck and these people spread down to the bottom.

The structure brings down to the basic level where the sales representatives have to bear a huge loss. 80% of people involved in the pyramid selling scheme face this loss and it’s not recovery.

Whereas, in the direct selling or MLM there will be a proper and genuine compensation structure. As per direct selling companies, there isn't any need to buy the starter kit by paying more money to become a member or a distributor. The product pack or samples will be provided once enrolled into the business with a joining fee, the products might value equal or near to the joining fee but never this difference goes beyond a certain limit.

The so-called product in multi-level marketing holds a value and there is a real marketing opportunity before the distributors.

As per the guidelines provided by the FTC, the two major signs to distinguish pyramid selling will be,

Inventory loading: Asking for more sales with a large amount of joining fee with inflated rates
Lack of retail sales: The product will be selling around the network only but not to the outside customer world

It’s time to understand what the governing council or authority has done to minimize or the laws created to categorize business as an illegal scheme.

Legal guidelines to follow
Legal guidelines to follow

Federal Trade Commission (FTC) has put forward strict guidelines to follow for every MLM company before they launch the product and market them to reach the end-users. The guidelines provide you exact details on how to identify a genuine ‘product selling business’ from an illegal pyramid scheme.

“How does the FTC distinguish between MLMs with lawful and unlawful compensation structures?

At the most basic level, the law requires that an MLM pay compensation that is based on actual sales to real customers, rather than based on mere wholesale purchases or other payments by its participants. In evaluating MLM practices, the FTC, in accord with established case law, focuses on how the structure as a whole operates in practice and considers factors including marketing representations, participant experiences, the compensation plan, and the incentives that the compensation structure creates. The assessment of an MLM’s compensation structure is a fact-specific determination that the FTC makes after careful investigation.”

The law defines a simple guideline - compensation based on sales made by the distributor but nothing else comes in between.

The guidelines provided by FTC includes the following,

  • Awareness about high earning or false hope on returns even if there aren’t any real products to sell. Such schemes will be using the joining money of new customers to pay the old ones and it’s a Ponzi scheme.
  • If the commissions are paid for recruiting and you find the absence of a product then the business is a scam. Even there are chances that a business falls under illegal under the presence of a real product.
  • If there is a product then makes sure it’s the price is not inflating often, the expense or the cost of the product is less, the product sales reach customers outside the network rather than among the network. If these aspects are not followed then it’s a pyramid scheme.
  • Make sure there are no hidden agendas or the organization is revealing its marketing plan to its distributors. The Charles Ponzi scheme explained in the case study section is a perfect example, he won’t explain the secret and finally, everyone lost their money invested.
  • Delays in the launch, payment rescheduling, forcing existing members to recruit more customers always find under the nature of a pyramid scheme. There are chances that the business offers long but won’t last enough unless more and more people burn their hands in the schemes.
  • Utilizing the facts that make people believe the scheme as an opportunity with new ideas or extraordinary profits creates an illusion. This illusion must be realized and one must understand that over a night, they can’t become millionaires.

In short, these guidelines possess the best way to kick down a pyramid scheme to the least.

But, are these guidelines enough to differentiate a pyramid scheme from a genuine MLM business? How far is the motto of FTC awareness found in its success stage? Why these scams are still running around even we have such guidelines from the authorities?

Let’s analyze all the above data and come to a conclusion by answering the above questions.

The final thought!

Appealing product pitches have always won the game even if it had proper signs of a pyramid scheme. It’s a fact that has never stopped people from taking a peek on such schemes. We shall now include the final stretch of this article with the following sections.

  • Why MLM is a 'blind box' opportunity?
  • Economic imbalance it brings to the world or countries
  • How these pyramid schemes affect personal and social life?
  • How does it reach you - What makes it attractive & When do you fall for it?
  • Influence of pyramid schemes in the young generation
Why MLM is a ‘blind box” opportunity?

Even though the scams are involved in all kinds of businesses, why the MLM industry is preferred in the first place?

The following stats will give you an exact picture of why this industry is highly explored for business scams?

In 2016, 31% of consumers find direct selling highly favorable in the USA.
In the USA, 50% of consumers have a neutral response to direct selling.

The stats show the influence of direct selling aka MLM among American people. They might fall for scams without much awareness. However, the scam doesn’t involve alone in the U.S, in fact, it is spread across the globe, user cases mentioned above back our hypothesis, it’s more than just speculation.

Many factors lack in the industry which creates a negative impact among the people who are quite interested to take their initial efforts in the MLM industry. Scammers will point out the attractive offers using catching headlines itself and even without going through the rest of the post they may end up inside the false business loop. Ultimately, at the end of the day, they lose money and eventually, trust in MLM.

This has to change, MLM companies must come up with proper guidelines and instructions to make everyone’s life better but not to promote their business with false promises and mesmerizing commissions.

Let’s see how the world’s economy is imbalanced due to these pyramid schemes.

Pyramid scheme - How it affects the world’s economy?

The impact of pyramid schemes in the world’s economy is not little, in fact, it’s huge and it has caused struggles in the balance as well as the legitimate MLM too. Let’s see some pyramid scheme data that caused public loss of money.

  • TelexFree, a US-based internet phone service company were selling its phones using a pyramid scheme. It involved 1.8 million people worldwide and a massive loss of 3 billion US dollars.
  • Koscot interplanetary Cosmetics, yet another US-based company involved in the scam and a loss of about 44 million USD.
  • WinCapita, a Finnish-internet based company caused a loss of 100 million euros using an illegal pyramid scheme.
  • Give and Take - Key to a fortune, a famous get-rich-quick pyramid scam made a huge loss of 19 million euros which involved 10,000 victims.
  • Burnie Madoff’s Ponzi scam, a stock and security scam created a loss of $17.5 billion.

From the above data, one thing is pretty much clear like a sunny day - the loss of money. Obviously, there are many such scams, and people have lost money for the time being. For sure, this will imbalance the economy.

There is yet another version that relates to the economy, let us explain you with survey results made from National consumers league, USA.

  • 31% of people in the survey consider home-based business because of the US economy that exists in 2009.
  • 1/3rd of the people can’t identify the pyramid scheme.
  • 42% of people who earns a low income in the survey consider pyramid scheme as a potential source of additional income as they don’t have good understanding or awareness about pyramid schemes.
  • As per the survey, 31% of the basic typology of pyramid schemes evolves from chain letters, 21% are from general pyramid schemes, 12% of gifting clubs, and finally, 7% of them from Ponzi schemes.

Hence we can call in two ways how a pyramid scheme affects the economy as well as how economical struggles cause people to fall for pyramid schemes as a supplementary source of income.

The imbalance caused by pyramid schemes and the world’s economy is thus highly interlinked to each other. The above data explores the U.S economy and the people live there, a similar course of circumstances exists in other countries. Together they bring down the economy and cause an imbalance.

How the pyramid schemes affect personal and social life?

The above survey shows how people consider a pyramid scheme as an income-driven source. People who earn a low-income, it’s a difficult road for them, and they have a family to take care of. Basically, they need money to live, so they will be constantly looking for additional income sources.

Scammers use the legitimate business model as a mask and convince this group of people, they fall for the scams.

The worst thing comes after joining such a fraudulent scheme, here they have to find more recruits not sales!

People use their personal contacts to drive income under their name in the business, hence they will maximize the contact circle and add more people into the scheme. They might find his useful and will recruit their friends & family.

Ultimately, everyone around the closest group will be directly affected and become prey. When they finally realize what they are up to, then the only thing they can perform will be blaming each other.

Once the relationships were strong, the bonding breaks and their life will sink to depths.

How can we possibly survive the impact of such loss?
How can we rebuild our life back?
What will our future look like?

These questions will be moving across their minds, the distress, the depression it causes will be high. Some might think that there is no getting back to normal life again, it’s over!

Everything is now torn apart, people who earn a low-income will become even worse. To get away from all such terrible situations is to become aware of the pyramid and Ponzi schemes. Never fell for fake promises, understand the marketing mantra - “Focus on sales more than recruiting more people.”

How does it reach you - What makes it attractive & When do you fall for it?

Social media is the finest channel these scammers use to spread their business, everyone has their own account on many social media platforms. The below stats promises the influence of social media among the people,

Influence of social media among the people

If there are 3.499 billion active users in the social media platform then the probability of spreading the word (pyramid scheme business marketing) is never out of the question. With attractive compensation with a headline that offers “get-rich-quick, earn 200% income, triple your investments” is far enough to attract more people into such business.

Everyone is curious to find such things on the internet and try to earn a huge pile of income. Well, advertisements are yet another channel to circulate false hopes for the entire viewers. It can be done via media like newspapers, flyers, paid ad-campaigns, tv ads, and much more.

Different age groups are involved in the scam as prey, and the scammers usually draw the attention of these age groups by making a good study.

This type of scams are also influencing the young generation, they fall under the traps of such scams to earn during their college life, the broken ones, and much more. They think of it as an opportunity to earn by paying a small amount of money and recruiting more people into the network.

There are instances where they will pay a little over $100 and then recruit more into the game with an 8-ball kind structure. After recruiting more people and completing the cycle, they will receive 10x returns. Doesn’t it look good? 10x returns after recruiting 14 more to the tree might not be a big deal to them so they refer more into the network and earn the promised returns. Others who join finds it as a perfect opportunity and they will fall for it.

But how long can they attract more people into the network? After a while, there won’t be enough around them for recruitment so they won’t receive the expected results. The result is nothing but losing even the initial amount.

The thirst to make money thus making the young generation vulnerable to such situations. Always aware of such things, it applies to everyone, including all age groups.

Crypto-scams

The new trend in the digital world is nothing but payments and transactions via digital currencies aka cryptocurrencies. Many think it’s more than a payment option, yes, that’s a truth - it’s more an investment but one needs to carefully analyze the kind of cryptocurrency they are offering.

Cryptocurrency pyramid schemes open up an investment opportunity before the potential investors. The investment will not be based on the shares and instead, it will be based on tokens. These tokens hold a value equal to that of new cryptocurrency developed by the company, more the tokens more the cryptocurrency value. Investors have to wait a while until the newly formed cryptocurrency is available or appear in the exchange platforms.

As there occur more exchanges then there will be more coin circulation. The demand gets increases once the circulation starts to shift the gears up and becomes a median of payment around the world. The investors will be credited with the cryptocurrencies which equal the value of tokens. They can then use the exchange platforms to convert or exchange the cryptocurrencies for an equal amount of fiat currencies.

They can also exchange the tokens but the only guarantee is based on hope, hope that one day the newly created cryptocurrency will get good value. They get more returns as the demand goes on, like say, they have bought 50 tokens for $1000 and finally, when it is available in exchanges, the price matches $3500.

The returns look good and the crypto-based business scammers will use this opportunity. They propose investors with a whitepaper that displays innovative and assure popularity based data to manipulate them. Once they receive the much-needed money then they will fly away in thin air or the legal team has to find out the scam.

A new type of pyramid schemes that often leads 90% of investors to false hopes. This is a new way to create pyramid schemes and the future might be scarier than this.

One must understand every bit of pyramid scheme history to understand it’s forming and get awareness from it.

Hope, we have covered a good deal about pyramid selling and it helps you to proceed further with investments and entering into legitimate direct selling business.

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