Pyramid Scheme

On some festive occasion you receive warm wishes from a friend whom you had known in the past, you revert back with best wishes. A few days later, you are receiving ‘Good Morning’, ‘Good Night’ wishes from them and some small chat on unrelated subjects. This takes you off guard, you start questioning is there something wrong. Soon after they start asking about your life, about future perspectives and anything new churning in your mind. As a normal corporate personnel, working with a 9 to 5 routine, away from your family, you are sometimes frustrated and thus, when someone is throwing a bone at you, you catch it and cry out all the nuisance and stagnation of your life. The person being a friend you are not afraid of sharing your experiences with them.

Sadly, here is the twist, now the person is not just a friend but also a crafty businessman. They didn’t show interest in you because they cared about you rather this was their hunting strategy. They just want to exploit you for their own good. Basically, all these deceivers have a common modus operandi. They will start with showing off their new-found success and flaunting their recent acquisitions like bikes, cars, etc. Then they will brag about their ‘business-trips’ which are usually to places like Malaysia, Thailand, Dubai etc. You will also find them flaunting their expensive shoes, clothes etc. on social platforms. All these things are just a ploy to grab people’s attention. They will show a different way of career, a path towards success, something different than you corporate life. They will inspire you with all the arsenal they have, confiscate your mind with all their success stories.

After this initial trap if you show slight interest, you will be either invited to some up-scale restaurant/coffee-shop or a seminar. Once you get there, they will start talking all kind of nonsense and will invite you to be a part of their company by investing a small amount of money. Here’s what all this charade was all about: the money. Sometimes you fall prey or sometimes you take a second opinion. But every time a friendship is ruined and the person’s character is tainted.

Interestingly, this is how a pyramid scheme is operated. So what is a pyramid scheme?

A pyramid scheme is an unsustainable business model that works by recruiting an increasing number of members at different levels. Instead of supplying any tangible, for-value goods or services, the model banks on promises of profits for enrolling other members into the scheme. These recruits are required to pay an upfront cost, and this cost makes for the promised payments. Also called as pyramid scams.

But why pyramid schemes are scams or always fails?

In a typical pyramid scheme, you pay to join. The scheme relies on you convincing other people to join up and to part with their money as well. In order for everyone in the scheme to make a profit there needs to be an endless supply of new members. In reality, the number of people willing to join the scheme, and therefore the amount of money coming into the scheme, will dry up sometime soon. In true sense, no wealth is ever created, no product is sold, no service is offered and no investment is made that can generate returns or any tangible output. Such schemes, though appear lucrative, cannot go on forever. The limited number of members at the top levels hope to benefit from the contributions made by the larger number of people at the lower levels. In the end, it swells up and fails, resulting a great loss to the people at lower levels.

But then why people join such schemes and all are fraudsters?

No, not everyone is a scam-artist. They just get involved for making some easy money and are perceived by some real fraudsters. So when they get involved, they have invested a large sum of money in the scheme, now to get a return there is only one left that is to involve other people. To register other people in such schemes is quite tough, so they end up marketing these schemes to their family and friends. Friends are more approachable than other strangers, so unintentionally they end up scamming others as well, without knowing its a fraud.

So what is the remedy to this? First of all spotting such pyramid schemes and not getting involved in such easy money making ventures. There is no alternative to success other than hardship. Secondly, spreading awareness regarding such scams. And finally, rescuing your friends who are involved in such schemes, by making them realize what they are doing is a fraud.

Sources:

• https://www.investopedia.com/insights/what-is-a-pyramid-scheme/
• https://ag.ny.gov/consumer-frauds/pyramid-schemes
• https://www.youtube.com/watch?v=VVUUbEw_Pm8

P.S.: I am not a financial expert, these are my own views.