Pyramid schemes are one of the most common types of investment fraud there is out there – and it isn’t just the people at the very top that get into trouble when the whole pile of blocks comes tumbling down. Anybody far enough up the organization can find themselves facing serious criminal charges.
Is it hard to spot a pyramid scheme? Often, these investment scams are cleverly billed as multi-level marketing programs (MLMs). MLMs often operate barely within the bounds of the law, and many pyramid schemes may start this way.
Take, for example, LuLaRoe, the legging company that was made famous first for its product and then for allegations that it was nothing short of a scam. The company still exists, but its founders and several highly placed members of the operation are still facing legal problems over the allegations.
So, what can you do to keep your finances intact and avoid getting swept up in an intense criminal investigation?
Red flags that should send you the other direction
Sure, you may find all those old high school friends bugging you to try Beachbody or asking if you want to host a Tastefully Simple party for them, but the real dangers tend to have the following in common:
- ● You’re promised big rewards for little work, in little time. Pyramid schemes need to lure people in to keep going, and the promises of passive income and amazing rewards are often enough to do it.
- ● You’re pushed to promote and advertise in a way that encourages more recruits to join in, with the promise that you will benefit from everything they do and every new recruit that they bring in behind you.
- ● You (and everybody else in the lower echelons) are charged for everything from training sessions to special (but somehow necessary) “retreats” that are supposed to help you move up the company ladder.
- ● You don’t have a clear understanding of either the commission structure nor the actual product or services being sold and your rights under the company’s rules if there’s a dispute or problem.
- Ultimately, all pyramid schemes collapse, no matter how sophisticated they begin. When they do, the fallout can be immense. Make sure that you are prepared to meet the legal challenges ahead if you find yourself charged with this type of investment fraud.