FIB - Scams 101

Re: Is it called Shield, Shell of SH**

Posted By: Wayne
Date: Tuesday, November 13, 2007, at 6:27 p.m.(pst)

In Response To: Re: Is it called Shield, Shell of SH** (John J)

Have any of you ever been involved with a MLM company? It seems you need to find new friends rather than the criminals you are hanging out with.
A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered. It has been known to come under many guises.
There are other commercial models using cross-selling such as multi-level marketing (MLM) or party planning which are legal and sustainable, although there is a significant grey area in many cases. Most pyramid schemes take advantage of confusion between genuine businesses and complicated but convincing moneymaking scams.
The essential idea behind each scam is that the individual makes only one payment, but is promised to somehow receive exponential benefits from other people as a reward. A common example might be an offer that, for a fee, allows the victim to sell the same offer to other people, or receive bonuses through other people they refer. Each sale includes a fee to the original seller.
Clearly, the flaw is that there is no end benefit; the money simply travels up the chain, and only the originator (or at best a very few) wins in swindling his followers. Of course, the people in the worst situation are the ones at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves. To embellish the act, most such scams will have fake referrals, testimonials, and information.
The distinguishing feature of these schemes is the fact that the product being sold has little to no intrinsic value of its own or is sold at a price out of line with its fair market value. Examples include "products" such as brochures, cassette tapes or systems which merely explain to the purchaser how to enroll new members, or the purchasing of name and address lists of future prospects. The costs for these "products" can range up into the hundreds or thousands of dollars. A common Internet version involves the sale of documents entitled "How to make $1 million on the Internet" and the like. The result is that only a person enrolled in the scheme would buy it and the only way to make money is to recruit more and more people below that person also paying more than they should. This extra amount paid for the product is then used to fund the pyramid scheme. In effect, the scheme ends up paying for new recruits through their overpriced purchases rather than an initial "signup" fee.
The key identifiers of a pyramid scheme include the following:
• A highly excited sales pitch (sometimes including props and/or hand-puppets).
• Little to no information offered about the company unless an investor purchases the products and becomes a participant.
• Vaguely phrased promises of limitless income potential.
• No product, or a product being sold at a price ridiculously in excess of its real market value. As with the company, the product is vaguely described.
• An income stream that chiefly depends on the commissions earned by enrolling new members or the purchase by members of products for their own use rather than sales to customers who are not participants in the scheme.
• A tendency for only the early investors/joiners to make any real income.
• Assurances that it is perfectly legal to participate.
The key distinction between these schemes and legitimate MLM businesses is that in the latter cases a meaningful income can be earned solely from the sales of the associated product or service to customers who are not themselves enrolled in the scheme. While some of these MLM businesses also offer commissions from recruiting new members, this is not essential to successful operation of the business by any individual member. Nor does the absence of payment for recruiting mean that an MLM is not a cover for a pyramid scheme. The distinguishing characteristic is whether the money in the scheme comes primarily from the participants themselves (pyramid scheme) or from sales of products or services to customers who aren't participants in the scheme (legitimate MLM).

I do hope this has educated you on the difference.

Wayne

Messages In This Thread

• Vitamark
  John J -- Friday, August 17, 2007, at 9:33 a.m.(pst)
  • Re: Vitamark
    DaveB -- Friday, August 17, 2007, at 9:46 a.m.(pst)
    • Re: Vitamark
      John J -- Friday, August 17, 2007, at 12:33 p.m.(pst)
      • Is it called Shield, Shell of SH**
        Virginia Sanders -- Saturday, August 25, 2007, at 7:34 a.m.(pst)
        • Re: Is it called Shield, Shell of SH**
          John J -- Saturday, August 25, 2007, at 8:15 a.m.(pst)
          • Re: Is it called Shield, Shell of SH**
            Wayne -- Tuesday, November 13, 2007, at 6:27 p.m.(pst)
            • Re: Is it called Shield, Shell of SH**
              nickus -- Wednesday, December 3, 2008, at 9:42 a.m.(pst)
        • Re: Is it called Shield, Shell of SH**
          Gery DiMarco -- Thursday, February 21, 2008, at 2:44 p.m.(pst)
    • Re: Vitamark
      Gery Di Marco -- Sunday, August 19, 2007, at 8:24 a.m.(pst)
  • Re: Vitamark
    Gery Di Marco -- Sunday, August 19, 2007, at 8:34 a.m.(pst)
    • Yes, inquiring minds want to know. (DNO)
      MaaMaw -- Sunday, August 19, 2007, at 8:43 a.m.(pst)

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