Pyramid schemes can be very seductive with promises of fast, easy wealth. Who doesn’t dream of getting rich overnight? While pyramid schemes are as old as money, the internet has given scammers a global reach. In the digital age, pyramid schemes have extraordinary power to steal from you. The internet has changed the form of pyramid schemes so much that most have become unrecognizable.
A pyramid scheme thrives on recruiting people into their so-called opportunity with promises of making lots of money fast. This strategy is known as “selling the dream.” When an organization markets itself by selling the dream instead of selling a product, it is probably a pyramid scheme. While searching for a way to make money online, people often get scammed by pyramid schemes selling the dream.
The truth is, making money online is possible. Millions make money online every day, but it takes patience, commitment, and proper training. Hype and empty promises won’t get you there.
What Is a Pyramid Scheme About?
A pure pyramid scheme does not have a product. In theory, it simply recruits people who pay money to participate in the scheme. However, most pyramid schemes in real life offer a product to conceal their fraudulent nature.
The legal definition of a pyramid scheme tests for inventory loading and the absence of retail sales. Before the digital age, a pyramid scheme would force its recruits to buy large quantities of products at high prices. Forcing recruits to buy large quantities of products is known as inventory loading. In the past, people who thought they were a distributor for a Multi-level marketing company would often have garages filled with products they could not sell.
In a pyramid scheme, the recruits are the only ones using the products. There is very little or no sales to people outside of the organization.
What’s a Pyramid Scheme?
Pyramid schemes have taken on a slightly different strategy in the age of the internet. Instead of inventory loading with physical products, pyramid schemes now force their members to buy expensive digital products like “make-money-online” learning programs of dubious value or outrageously priced physical products like vitamins or fortified beverages.
The internet and sophisticated marketing strategies have given pyramid schemes the ability to cloak themselves with an air of respectability.
It can be extremely difficult to see their underlying fraudulent nature.
How to Spot a Pyramid Scheme.
Naming Names
. . . a pyramid scheme forces its members to pay money for the right to sell a product. (Source: FTC)
Because the following companies charge members large sums of money for the right to sell digital training packages of questionable value, I consider them pyramid schemes masquerading as MLMs.
Most people think of Ponzi schemes and pyramid schemes as the same thing. Both are scams, but there is a slight difference between the two.
A Ponzi scheme is investment fraud. A central character, the perpetrator of the fraud, does all of the recruiting. Typically, there is no product with a Ponzi scheme, and the members do not earn commissions. Instead, the perpetrator promises a high return on investment.
Instead of paying out commissions, in a Ponzi scheme, the person at the top promises the recruits a high rate of return on a short-term investment. However, there is no investment. The person at the top of the scheme is merely taking money from new recruits to pay the older recruits.
Bernie Madoff ran a pure Ponzi scheme. Madoff pretended to be an investment broker. He took large sums of money from investors and paid them back enough to make them think they were earning a high rate of return, but he never invested the money. Read more about Ponzi schemes here.
Is MLM A Pyramid Scheme?
Remember, most people who attempt multi-level marketing will lose money, even with legitimate and well-established MLM companies.
It’s easy to confuse MLMs with pyramid schemes. Most organizations resemble a pyramid with a few people at the top and a broad range of people at the bottom.
True MLMs are not pyramid schemes because they have real products and pay commissions earned on the retail sale of these products. However, with some MLM companies, it can be so difficult to tell if they are a legitimate company that only a lengthy investigation and ruling by the Supreme Court can make the determination. (See Is Herbalife a Pyramid Scheme)
Many pyramid schemes pretend to be multi-level marketing companies. The FTC has found pyramid schemes marketing a vast array of products, including vitamins, digital products, investments, charities, credit cards, jewelry, women’s clothing, cosmetics, cleaning products and electric power. A pyramid scheme can claim to market anything.
1. Assume an offer is a scam. Make them prove they are legitimate and can be trusted. 2. A free offer is not necessarily proof that a business is legitimate. 3. Avoid programs and so-called opportunities that “sell the dream” and promise you can make a lot of money quickly. 4. Avoid programs that rely solely on recruiting others into the business. 5. Avoid programs that require members to pay for the right to sell their products. 6. Avoid companies with complex compensation plans. If you can’t understand it, don’t get involved. 7. Avoid programs that sell products with inflated prices or that require new recruits to buy expensive inventory and digital products. 8. Avoid programs that claim they have a secret plan or special advantage. 9. Avoid programs that delay paying out commissions. 10. Avoid programs in a “pre-launch” phase. 11. Avoid programs that promote a cult-like zeal. 12. Avoid unsolicited offers. 13. Read How to Really Make Money Online & Never Get Scammed.
The Last Word on Pyramid Schemes
Pyramid schemes and their cousin Ponzi are here to stay. And the internet will continue to give them an extraordinary advantage for scamming you. The first sign of a pyramid scheme is their attempt to sell you the dream.
It’s exciting to believe you will soon be rich. However, it’s doubtful it will happen with some one-off program. In fact, if you chase after so-called opportunities the odds are you will lose money.
However, you can make money online. With consistent effort, you make a lot of money.
With the right training and support, you can learn to use the internet to your advantage and to achieve financial freedom, but you won’t do it chasing the dream of some pyramid scheme. To enroll in a free basic course about how to really make money online, Click Here.
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If you found this article useful, please leave a comment below. Thank you!
My parents unknowingly got involved in a pyramid scheme about 30 years ago, Fortunately, they only lost about $5000, which was a lot of them, but not enough to cripple them. My uncle, however, lost just about everything.
These predators prey on people’s fear of never having enough and their desire to make a better life for themselves and their families. The tips you’ve outlined for protecting yourself against getting involved in one of these scams are very good. People need to be aware, and everyone should go through this checklist before signing up for anything and agreeing to give anyone a dime of their money.
Thanks for helping to spread the word and doing your part to keep people safe. Best of luck to you.
Thanks for sharing the experience your parents and uncle had with pyramid schemes.
I know someone who left a promising career to pursue a pyramid scheme. He lost everything too. And I know of another who sold his share of an architectural firm to join a pyramid scheme. He too lost everything. The firm he once owned a third of, and which still bares his name, is now a global enterprise designing and building hospitals and office buildings around the world, but he doesn’t get a penny of it.
The scammers are heartless and do not care that they ruin people’s lives. The internet has introduced these psychopaths into everyone’s home. We cannot be too careful.
Ok this is one of the best article i have read. I have also been sold a dream many times and one time i joined one and ended up buying products i could not sell so i used them myself, everyone i approached told me they were to expensive! I for one will never get into such online. This also reminds me of scams that offer jobs
In my experience, if someone is selling the dream it’s because their product is worthless and cannot be marketed for its merits and value. This is how MLM and pyramid schemes sell $5 worth of vitamins for $50. No one would pay that much for vitamins that can get at Wal-Mart unless they thought they would make a lot of money in the process.
Ok, this is one the best articles I have read! I have also been sold a dream many times and one time i joined one and ended up buying products i could not sell so i used them myself, everyone i approached told me they were too expensive! I for one will never get into search online. This also reminds me of scams that offer jobs,
Thanks for sharing your experience. It sounds like you got caught up in an MLM or a pyramid scheme pretending to be an MLM. It can be a difficult lesson, but now you are immune to someone selling you the dream.
Like you mentioned, the products are usually very expensive. This is why many MLM and pyramid schemes require members to commit to purchasing a minimum each month with auto-ship contracts. It’s just a way of locking you in.
Very good video and article on pyramid schemes. One of the worst things in the world is when people who mean well and who work hard get caught up by a fast talking person who uses them to make money or obtain power.
I love the idea that the training that you speak of is a free open door to take a look at what you have to offer. That way people can make an educated decision before making a big investment. Very valuable for some of us without a lot of start up money
It’s hard for honest people to imagine there are such dishonest people in the world. I grew up in a community where we left our houses unlocked when we were gone, left the keys in our car and slept with the windows open. Those days are long gone.
My first experience with a pyramid scheme was with the infamous Dare to Be Great organization. I was a 17 year old dishwasher in a hotel in South Carolina where they held a conference. The son of one of the big wigs with Dare to Be Great and I formed a friendship. He told me his dad talked people into mortgaging their home to join Dare to Be Great. This was in 1975. Soon after I learned this, Dare to Be Great was busted as a pyramid scheme by the FTC.
The internet brought us many good things, but it also brought the worse into our homes as well. Any so-called business opportunity that costs money before you can try it is suspect. Legitimate online businesses that offer genuine value know that when you see the value they offer you will join.
On the other hand, the scammers know that once you see what they are about, you will run away, so they better get your money upfront.
There are only two places I recommend people go to learn how to make money online. Only one is suitable for newbies. You can read about it here.
Hey I really love your site. I was scammed once because I was sold on the “selling your dream” I wanted to be like everyone that I saw driving the expensive cars and owning nice houses but I was lured in and scammed. Your 13 steps to avoid pyramid schemes is pretty simple, I will definitely stick to them and read #13 right away!
Yes, I was sold the dream a few times too. It was a hard lesson and caused me to lose money and friends. Unfortunately, the internet has brought pyramid schemes and scams of every stripe into our homes.
That’s a very good post on what a pyramid scheme is about with some great advice on how to avoid them. I would agree that with the internet that pyramid schemes have become much more sophisticated and are deceiving many people because they are able to hide their true nature of what they are really about.
I like how you explain the differences between the pyramid, ponzi schemes and MLM’s, I’d steer clear of MLM’s due to the amount of work involved for very little return.
The bottom line is here, that you have to be very vigilant and diligent to avoid getting caught in these scams and as you said they are here to stay and are probably only going to get worse.
You asked about the difference between a pyramid scheme, a Ponzi scheme and an MLM.
A Ponzi scheme is investment fraud. Typically, with a Ponzi scheme, a single person talks people into investing with him. In truth, there is no investment. The first people to get in on the scheme are paid with a portion of the money from people who join later. Usually, the schemer or his agents do all of the recruiting of investors. And the schemer keeps most of the money.
A pyramid scheme requires people at the top to recruit others. Then the recruits recruit people and they recruit people. A legal test for whether a business is a pyramid scheme or legitimate MLM is whether the bulk of the companies revenue comes from sells to people not affiliated with the business. If most of the income comes from recruiting others, it’s probably a pyramid scheme.
Also, if the company requires a recruit to buy a product before they can sell it, it is probably a pyramid scheme. There are a lot of businesses online that do this and usually their products are junk digital products of little to no value.
There is a very thin line between legitimate MLM companies and pyramid schemes. In most cases, it would take a team of lawyers months to prove whether a business is a legitimate MLM or not. In theory, a legitimate MLM earns most of its revenue from retail sales to people outside of the organization and not from recruiting. However, every MLM I’ve ever worked with or researched relies heavily on recruitment.
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I Found out what a pyramid scheme is about by reading this article!
My parents unknowingly got involved in a pyramid scheme about 30 years ago, Fortunately, they only lost about $5000, which was a lot of them, but not enough to cripple them. My uncle, however, lost just about everything.
These predators prey on people’s fear of never having enough and their desire to make a better life for themselves and their families. The tips you’ve outlined for protecting yourself against getting involved in one of these scams are very good. People need to be aware, and everyone should go through this checklist before signing up for anything and agreeing to give anyone a dime of their money.
Thanks for helping to spread the word and doing your part to keep people safe. Best of luck to you.
Hi, Joshua!
Thanks for sharing the experience your parents and uncle had with pyramid schemes.
I know someone who left a promising career to pursue a pyramid scheme. He lost everything too. And I know of another who sold his share of an architectural firm to join a pyramid scheme. He too lost everything. The firm he once owned a third of, and which still bares his name, is now a global enterprise designing and building hospitals and office buildings around the world, but he doesn’t get a penny of it.
The scammers are heartless and do not care that they ruin people’s lives. The internet has introduced these psychopaths into everyone’s home. We cannot be too careful.
Thanks for stopping by,
Gary
Ok this is one of the best article i have read. I have also been sold a dream many times and one time i joined one and ended up buying products i could not sell so i used them myself, everyone i approached told me they were to expensive! I for one will never get into such online. This also reminds me of scams that offer jobs
In my experience, if someone is selling the dream it’s because their product is worthless and cannot be marketed for its merits and value. This is how MLM and pyramid schemes sell $5 worth of vitamins for $50. No one would pay that much for vitamins that can get at Wal-Mart unless they thought they would make a lot of money in the process.
Thanks for stopping by,
Gary
Ok, this is one the best articles I have read! I have also been sold a dream many times and one time i joined one and ended up buying products i could not sell so i used them myself, everyone i approached told me they were too expensive! I for one will never get into search online. This also reminds me of scams that offer jobs,
Hi, Milar!
Thanks for sharing your experience. It sounds like you got caught up in an MLM or a pyramid scheme pretending to be an MLM. It can be a difficult lesson, but now you are immune to someone selling you the dream.
Like you mentioned, the products are usually very expensive. This is why many MLM and pyramid schemes require members to commit to purchasing a minimum each month with auto-ship contracts. It’s just a way of locking you in.
Thanks for stopping by,
Gary
Very good video and article on pyramid schemes. One of the worst things in the world is when people who mean well and who work hard get caught up by a fast talking person who uses them to make money or obtain power.
I love the idea that the training that you speak of is a free open door to take a look at what you have to offer. That way people can make an educated decision before making a big investment. Very valuable for some of us without a lot of start up money
Hi, Vertical Veloxity!
It’s hard for honest people to imagine there are such dishonest people in the world. I grew up in a community where we left our houses unlocked when we were gone, left the keys in our car and slept with the windows open. Those days are long gone.
My first experience with a pyramid scheme was with the infamous Dare to Be Great organization. I was a 17 year old dishwasher in a hotel in South Carolina where they held a conference. The son of one of the big wigs with Dare to Be Great and I formed a friendship. He told me his dad talked people into mortgaging their home to join Dare to Be Great. This was in 1975. Soon after I learned this, Dare to Be Great was busted as a pyramid scheme by the FTC.
The internet brought us many good things, but it also brought the worse into our homes as well. Any so-called business opportunity that costs money before you can try it is suspect. Legitimate online businesses that offer genuine value know that when you see the value they offer you will join.
On the other hand, the scammers know that once you see what they are about, you will run away, so they better get your money upfront.
There are only two places I recommend people go to learn how to make money online. Only one is suitable for newbies. You can read about it here.
Thanks for stopping by,
Gary
Hey I really love your site. I was scammed once because I was sold on the “selling your dream” I wanted to be like everyone that I saw driving the expensive cars and owning nice houses but I was lured in and scammed. Your 13 steps to avoid pyramid schemes is pretty simple, I will definitely stick to them and read #13 right away!
Hi, Kenny!
Yes, I was sold the dream a few times too. It was a hard lesson and caused me to lose money and friends. Unfortunately, the internet has brought pyramid schemes and scams of every stripe into our homes.
Thanks for stopping by,
Gary
That’s a very good post on what a pyramid scheme is about with some great advice on how to avoid them. I would agree that with the internet that pyramid schemes have become much more sophisticated and are deceiving many people because they are able to hide their true nature of what they are really about.
I like how you explain the differences between the pyramid, ponzi schemes and MLM’s, I’d steer clear of MLM’s due to the amount of work involved for very little return.
The bottom line is here, that you have to be very vigilant and diligent to avoid getting caught in these scams and as you said they are here to stay and are probably only going to get worse.
Hi, Adrian!
Thanks for you kind words.
You asked about the difference between a pyramid scheme, a Ponzi scheme and an MLM.
A Ponzi scheme is investment fraud. Typically, with a Ponzi scheme, a single person talks people into investing with him. In truth, there is no investment. The first people to get in on the scheme are paid with a portion of the money from people who join later. Usually, the schemer or his agents do all of the recruiting of investors. And the schemer keeps most of the money.
A pyramid scheme requires people at the top to recruit others. Then the recruits recruit people and they recruit people. A legal test for whether a business is a pyramid scheme or legitimate MLM is whether the bulk of the companies revenue comes from sells to people not affiliated with the business. If most of the income comes from recruiting others, it’s probably a pyramid scheme.
Also, if the company requires a recruit to buy a product before they can sell it, it is probably a pyramid scheme. There are a lot of businesses online that do this and usually their products are junk digital products of little to no value.
There is a very thin line between legitimate MLM companies and pyramid schemes. In most cases, it would take a team of lawyers months to prove whether a business is a legitimate MLM or not. In theory, a legitimate MLM earns most of its revenue from retail sales to people outside of the organization and not from recruiting. However, every MLM I’ve ever worked with or researched relies heavily on recruitment.
Thanks for stopping by,
Gary