How to Avoid Pyramid Schemes

Rule No. 1: If it sounds too good to be true, run — don’t walk — away.

The word you want to use if your friends, co-workers or loved ones propose such a business opportunity to you is “no.” End the conversation immediately and get away from the person making the pitch. Don’t say, “I’ll think about it,” because that will encourage them to try to wear you down.

Rule No. 2: You don’t need to know or prove that the proposal is a fraud to have reason to reject it.

Leave it to the courts to determine fraud. You simply have to know that it is your money and that there needs to be a compelling reason for you to give your money to someone as part of a business deal. If a person pitches you about a “sure thing” that is supposed to pay you a big profit, you know that he or she is lying to you. You don’t have to prove to anyone that the proposed deal is a scam. Anything that sets off even the tiniest warning bells is a perfect reason to invoke Rule No. 1 and say no.

There are all kinds of multilevel investment programs that may be legal (or too difficult to prove to be criminal schemes). The law cannot effectively protect you from such schemes, but you can protect yourself if you look for these warning signs and if you follow Rule No. 1 if any of them are present.

Any “investment” program that requires you to recruit other “investors” in order to be successful is a form of pyramid scheme. Whether the scheme meets the legal test for fraud need not concern you. That’s what Rule No. 2 is all about. You should never agree to “invest” in such a scheme. I stress the word “never.”

A pyramid scheme will typically also require you to purchase products from the company. There are, of course, legitimate franchise agreements — think McDonald’s — in which the owner of the local franchise must purchase products from the parent company. So this feature, in itself, is not a foolproof warning sign. But you do not need specialized expertise to distinguish between a real franchise like McDonald’s with brick-and-mortar stores and a back-of-the-van sales operation that can achieve a big score only by bringing many new “investors.”

There are so many con men out there be careful. Always remember Rule #1 – If it sounds too good to be true – run – don’t walk – away!!


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3 responses to “How to Avoid Pyramid Schemes”

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