Financial Crime World

PyramidSchemes in the Digital Age: A Warning from the Federal Trade Commission

Pyramid schemes, a form of financial fraud that has been around for centuries, have seen a resurgence in the digital age. The Federal Trade Commission (FTC), an independent U.S. government agency protecting consumers, sheds light on these deceitful practices and their recent invasion of various sectors.

Understanding Pyramid Schemes

Pyramid schemes promise lucrative returns based on recruitment rather than sales:

  1. Pyramid Schemes vs. Legitimate Businesses: Pyramid schemes are not legitimate businesses. They are characterized by inventory loading and a lack of retail sales (FTC - What Is a Pyramid Scheme and How Does It Differ from a Legitimate Multilevel Marketing Program?).

  2. Ponzi Schemes vs. Pyramid Schemes: Although related, Ponzi schemes and pyramid schemes differ in key aspects. In Ponzi schemes, the promoter collects payments from new recruits to pay earlier investors. Both are illegal (FTC - MMM: A Ponzi Scheme).

  3. MLMs vs. Pyramid Schemes: Genuine Multilevel Marketing (MLMs) should not be mistaken for pyramid schemes. Legitimate MLMs sell goods or services to the public and offer competitive commissions for product sales (FTC - Multilevel Marketing Programs: How to Spot Pyramid Schemes).

How Pyramid Schemes Operate

  1. New Recruit: Potential investors are attracted by the seemingly irresistible promise of high returns.
  2. Promoter or Con artist: Those at the top of the pyramid see new recruits as a source of predictable revenues and expenses, collecting the majority of funds and paying earlier members.
  3. Victims: The pyramid scheme inevitably collapses, often leaving most investors with substantial losses. Pyramid Schemes: How They Operate

Despite their illegal nature, pyramid schemes remain a significant challenge for law enforcement agencies. Stay informed and vigilant: if an opportunity seems too good to be true, it likely is. For more information.