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8 Warning Signs of a Pyramid Scheme – GOBankingRates


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Have you ever been approached for a “business opportunity” that promises you’ll earn a ton of money from your home? This is a subtle warning that someone may be attempting to recruit you as part of a pyramid scheme. 

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Pyramid schemes, according to the U.S. Securities and Exchange Commission, are a type of fraud where participants profit almost exclusively through recruiting other people to join their programs. How do you know whether someone is trying to recruit you into a pyramid scheme or multi-level marketing scheme?

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Pay attention to these common pyramid scheme warning signs.

There’s Nothing for Sale

What is it you are selling, exactly? In a pyramid scheme, the SEC says, no genuine product or service is sold. Sometimes fraudsters will give products or services fancy-sounding names in order to make the company appear to be legitimate. If you find there’s no underlying product or service being sold, or what is being sold is hard to value, speculative or appears to be inappropriately priced, exercise caution. 

Some fraudsters choose fancy-sounding “products” to make it harder to prove the company is a bogus pyramid scheme.  

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Recruiting Is the Primary Emphasis

Many pyramid schemes and MLM schemes emphasize the importance of recruiting new participants. Programs that emphasize recruiting participants, and paying a fee, to join the program are likely pyramid schemes. 

Easy Money

Earlier, we mentioned it’s tempting to try out a pyramid scheme because it promises the ability to earn easy money.

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However, the SEC says you may be part of an illegal pyramid scheme if you are offered compensation in exchange for doing little work like making payments, recruiting others or placing online ads on obscure websites. Be wary of the promise of easy money.

Promises of High Returns in a Short Time Period

Any program that offers fast cash quickly is something to be rightfully skeptical about. According to the SEC, this could mean commissions are being paid out of money from new recruits rather than revenue generated by product sales. Exercise caution with pitches for “get rich quick” claims and exponential returns.



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