If you look on the back of the one-dollar bill, you will find a symbol seemingly out of place among the bald eagles, halls of congress, and faces of founding fathers on other bills. An unfinished pyramid, signifying strength and duration, topped with an all seeing eye of providence. No one can blame the founding fathers for using a symbol from the other side of the world to represent strength and duration: the Great Pyramid of Giza has stood tall for over 4500 years.
But the Great Pyramids are made of stone, and the pyramid on the Great Seal is symbolic. Unfortunately, most of the pyramids being created these days are made of something even more tenuous than symbolism; they are made of paper trails and promises of money. They aren’t presided over by the eye of providence, but by a schemer on top cashing in.
Many of us have had personal experience with pyramid schemes. The unfortunate dinner party turned sales pitch. The friend who thought he found the next big thing, and now needs you and everyone else he knows to join. A ‘job interview’ where you hardly get a word while the boss pitches you the ‘job.’ Pyramid schemes are usually disguised as business opportunities selling real products, whether they are magazine subscriptions, nutritional supplements, or educational tapes.
But it’s rarely the products that are being pushed. The products pile up in your garage, basement, and crawl space while you are forced to go out and find more investors. You can make measly profits selling the product, but you get big kickbacks for recruiting new ‘employees’ who like you will have to buy their initial inventory.
Low Man on the Totem Pole
So what is wrong with paying people to recruit new members? Well, nothing, if you have a legitimate business to back it up. What makes pyramid schemes illegal is that the entire business is based on finding new members to buy into the plan. A business built on selling products is feasible so long as there are people to buy things. A business built on recruiting more people topples like a house of cards because there aren’t enough people in the world to sustain it and only the people at the tip-top get any returns. And when these houses of cards collapse, people get hurt.
Multi-level Marketing (MLM) plans, or ‘Direct Marketing’ campaigns, are often confused for pyramid schemes, sometimes for good reasons. If you are being pitched a job in direct marketing, and most of the benefits you will receive from your business accrue when you recruit new salespeople like yourself, follow the FTC’s advice and do your research before signing any contracts.
Bernie Madoff is in the news again. If you missed the news the first twenty times around, Bernie perpetrated a Ponzi scheme to the tune of $18 billion (with a b) in real cash losses. Real cash is an important distinction here, because on paper Bernie had inflated that money to look like $65 Billion (with a capitol B) to his investors. This is how a Ponzi scheme works:
Bernie comes to you and tells you if you give him $100, he will invest it like a champ. In a month or two, he says “The investments are doing great! Here is your first $10 of interest!” Your money is making money, so you keep it with Bernie, and you tell your friends to invest with your pal Mr. Madoff. They invest $100, and you get some more interest back! So do your friends, and everyone is happy making money.
Except Bernie. He isn’t happy; he is ecstatic. He doesn’t even have to invest the money. He just puts it in a bank account, makes up some phony investment records, and pays you back $10 of your original money. When your friends join, he has more money to pay you back with to keep you bragging about how great your broker Bernie is. He has investors lining up to put more money into the giant pile of cash he is using as his own personal piggy bank.
But then someone does some investigating, and finds that the mountain of money Bernie for you was made is built on a phony paper trail. The house of cards tumbles and falls, and no one is happy anymore. Especially Bernie: he’s doing 150 years in the Federal Penitentiary.
Remember: If it sounds too good to be true, it probably is. If you are expecting hard cash, expect to do some hard work. Scammers like Bernie and Ponzi thought they were taking the easy route but ended up locked up. Make sure that you do your research around the internet and here on Scambook to make sure your time and money are only invested in endeavors with solid foundations.