Let The Buyer Beware

Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic. They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure. There are two tell-tale signs that a product is simply being used to disguise a pyramid scheme: inventory loading and a lack of retail sales. Inventory loading occurs when a company's incentive program forces recruits to buy more products than they could ever sell, often at inflated prices. If this occurs throughout the company's distribution system, the people at the top of the pyramid reap substantial profits, even though little or no product moves to market. The people at the bottom make excessive payments for inventory that simply accumulates in their basements. A lack of retail sales is also a red flag that a pyramid exists. Many pyramid schemes will claim that their product is selling like hot cakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers out in the general public.

1. Beware of any plan that makes exaggerated earnings claims, especially when there seems to be no real underlying product sales or investment profits. The plan could be a Ponzi scheme where money from later recruits pays off earlier ones. Eventually this program will collapse, causing substantial injury to most participants.

2. Beware of any plan that offers commissions for recruiting new distributors, particularly when there is no product involved or when there is a separate, up-front membership fee. At the same time, do not assume that the presence of a purported product or service removes all danger. The Commission has seen pyramids operating behind the apparent offer of investment opportunities, charity benefits, off-shore credit cards, jewelry, women's underwear, cosmetics, cleaning supplies, and even electricity.     (Read Full Article)

Gifting clubs are pyramid schemes that have participants fill out a “gifting” statement. This statement says the investor is giving a “gift” to other people in order to join. In reality, gifting clubs are illegal pyramid schemes where new members are promised money if they get additional members to join. Calling this scheme a “gifting club” is merely an attempt to make an illegal transaction look legal. Bottom line is that gifting clubs are also certain to eventually collapse. (Read Full Article)

   There are a lot of programs and Biz-Ops being promoted on the Internet that clearly appear to fall within the FTC gudelines of pyramid and Ponzi schemes. The proliferation of pyramid and Ponzi schemes make it impossible for the government to shut them all down immediately and at once, therefore it basically becomes a "let the buyer beware" scenario.

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