Attorney General Chris Carr is warning consumers about a new take on the classic pyramid scheme. Pyramid schemes are illegal multilevel marketing programs that 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. They may require you to buy products before you are eligible to be paid or receive bonuses, and you may need to pay fees for things like training sessions or expensive marketing materials. Plus, you can pretty much count on the fact that the only people making money are the scammers who are running it.
Recently, fraudsters have been promoting pyramid schemes to young adults via Instagram. In some cases, the scammers purport to be representatives of a company that is transferring money to college students to establish creditworthiness and claiming you can make $350 for every person you enroll. There are different versions of these pyramid schemes, but they usually ask you to pay a fee of $100 or more to take part and promise you can easily make big sums by enrolling others. Inevitably, those who participate end up losing money to scammers without ever receiving a return on their investment.
The Attorney General’s Consumer Protection Division offers the following warning signs of a pyramid scheme:
- Promoters make extravagant promises about your earning potential.
- Promoters emphasize recruiting new distributors for your sales network as the real way to make money.
- Promoters play on your emotions or use high-pressure sales tactics, maybe saying you’ll lose the opportunity if you don’t act now and discouraging you from taking time to study the company.
- Distributors buy more products than they want to use or can resell, just to stay active in the company or to qualify for bonuses or other rewards.
- Remember – if it sounds too good to be true, it usually is.
If you are thinking about joining a multilevel marketing program, consider that even in legitimate multilevel marketing programs, the vast majority of participants make little or no money once you factor in their out-of-pocket costs. Before joining a multilevel marketing program, make sure you do your homework:
- Check the company’s reputation with the Better Business Bureau by visiting bbb.org. You should also do an online search for the company name plus the word “scam,” “complaints,” or “reviews.”
- Make sure the products being sold are high-quality products at competitive prices. Steer clear of companies that make dubious claims about their products, such as “miracle cure” or “results guaranteed.”
- Be sure you fully understand the costs involved. Will you have to pay for training, marketing materials, seminars and travel costs? If you have to pay for inventory up-front, find out whether the company will reimburse you for any unused products.
- Try to talk to current and past distributors to see how much they have earned, what their expenses were, how much time they spend on the business, how many recruits you need to make money, how many people they recruited in the last year, and how many of those are still with the company.
- Carefully read over the company’s sales literature, disclosures, contracts and agreements. Have a trusted friend or advisor review it as well to help you better evaluate whether the company’s earning claims seem plausible.