Pyramid Schemes
Posted by Gail | Filed under Life Lessons, Money Management
I recently got a letter that made me cringe.
There is a pyramid scheme running rampant through my hometown at this moment (called L.I.F.E. or Living Intentionally For Excellence). Even my own husband was roped into it! His friend called him and told him he had a ‘business opportunity” he wanted him to be a part of, but that he (my husband) would need to attend a meeting to become better acquainted with what the opportunity was. My husband, in one day, went from telling his friend that he would attend the meeting but wouldn’t be able to sign up for anything without discussing with me, to joining up and telling me my opinion didn’t matter! The people involved in this pyramid scheme told him, that he would encounter negative people with closed minds that would try to talk him out of this, so when I wasn’t on board, I was labeled a negative person with a closed mind! It wasn’t until he got his credit statement that showed his credit card maxed out…..and not a penny earned (although the guy who signed him promises to be retired after one year!) that he saw this scheme for what it really was. Now, even after hearing our story, my brother is falling for it!
I can’t believe these things are still around and people are still gobbling them up hook, line and sinker. Pyramid schemes date back to Joan Rivers’ first facelift. When a company or an individual recruits investors who then have to recruit other investors, this is usually a pyramid scheme. New recruits provide the funding, or so-called returns, given to the earlier investors/recruits pushing them up the pyramid.
The only way the pyramid scheme can generate returns is to bring in more suckers to feed the bottom tier. When the scheme loses steam, the pyramid collapses. Now this scheme seems to have added the additional dimension of putting credit into the mix. What a recipe for disaster! And if that’s not bad enough, it’s divisive as well.
If you’re approached with a “great deal” and a promise of “fabulous returns” or a “sure thing”, ask these questions before you swallow the hook:
Do you have a brochure? No paper should be a big tip-off.
What exactly am I buying? If you can’t touch it, you shouldn’t buy it.
Who is in charge? That’s the person you want to talk to.
What do I get back for the money I am investing? If the return sounds unbelievable, ask more questions.
Why do I have to recruit someone else? No other investment relies on recruitment.
How is this investment taxed? If it’s not taxed, it’s not an investment.
Why do you need access to my credit card? Don’t be a dope. No one should be able to charge stuff to your credit card that comes as a surprise to you!
How long can I think about this? The sooner you have to make a decision, the more time you should take to think about it.
The old adage is, “There’s a sucker born every minute” has been incorrectly attributed to P.T. Barnum. While the attribution may be incorrect, the sentiment is dead on.
People, there’s no magic to making money, no matter how many get-rich-quick schemes you see out there or how many testimonials there are to a new way to “make money easy and fast”. Having lotsnlotsa money takes hard work and careful management. If you’re looking for an easy way, you’re a sap. It’s only a matter of time before you get taken.
May 14, 2012 at 6:42 am
I just googled this company to see what it’s all about….they ought to be ashamed of themselves.
May 14, 2012 at 6:57 am
It’s the old adage: if it sounds too good to be true, it usually is.
I have friends that have been scammed on eBay and kijiji. Like, you really thought you could get a one year old car for $5000?!! Really?!
And home parties drive me crazy. How much profit is each person making vs. the cost and quality of the item?
May 14, 2012 at 7:24 am
We have a good friend, a single lady in her 50s, who has been suckered in to one of these schemes. It has even gone to the point of her taking out a home equity loan to support this company.
Everyone in our circle of friends have talked to her about this and discouraged her from being involved. She has approached all of us to buy the product and become part of the ‘experience’. It has been over two years and she has still not recruited anyone yet she continues to go to the weekly meetings, ‘conferences’ in the US and buys their insanely expensive products.
They have brainwashed this woman into believing that she can make thousands of dollars. She has put her home and her retirement in dire jeopardy.This group has also turned her against her true friends; those of us who have been there over the years for all the ups and down in her life. They too, have labled us as ‘negative’ and ‘unsupportive’.
We are all so worried for her future. She is a good person, or at least she use to be before this company got their claws into her. She is a train wreck waiting to happen.
We don’t know how to get through to her anymore. It is just so sad.
May 14, 2012 at 7:31 am
“Pyramid schemes date back to Joan Rivers’ first facelift” thanks for my daily chuckle! Seriously though; dreams and wishes can sometimes replace common sense because we want to believe so much that we can beat the odds that we can be that person whatever our definition of that person is! I belive that the knack that truly successful people have (whether it be successful in money, life or whatever) is to take those dreams and wishes and translate them into concrete steps to move forward which usually involves some sweat equity. A good many people don’t like getting sweaty!
May 14, 2012 at 8:13 am
It’s really sad when people get caught up with these schemes. But sometimes we get ourselves in a desparate or greedy place, which makes it easier to fall for these scams.
Sometimes these companies go through extreme measure and provide fake paper work, and a website to make them look legit. I’ve seen many of these pyramid scams on American Greed. It’s amazing what people will go through to rip some one off, all in the name of greed.
May 14, 2012 at 8:49 am
I recently attended a “business launch” for a friend of mine (or at least, a former friend of mine!) who has gotten roped into a similar type of “business”. I didn’t know what the get together was until I got there, and I was pretty peeved when I found out what was going on.
This particular company is pushing one single “flagship miracle product”. When I started asking questions about it, I was told that the program works best for people who don’t ask questions but who simply believe in the product and that it works (so apparently, if you want to be informed and educated, this isn’t for you…). I was also told that this program was not a “pyramid scheme” but instead a “network marketing business”. If it walks like a duck and acts like a duck…
I didn’t “join” this company and their “business opportunity”… and I also haven’t heard from this “friend” since then… hmmmm… I wonder if that is simply a coincidence?
May 14, 2012 at 8:58 am
As my folks used to say, “If it sounds too good to be true, it probably is.”
May 14, 2012 at 9:24 am
I had a couple of friends almost hand over $5000 to a similar scheme. They thought they’d get $20 000 back in return. I tried to explain to them NOT to do it. In the end the friend of theirs who was involved didn’t get her money back so she told them not to do it
I work with several ladies who are into these home parties and I have to say no to going all the time. There should be a rule against trying to rope in co workers during office hours. If I want a product I will go and buy it thanks.
May 14, 2012 at 9:38 am
@Sara M – a lot of workplaces actually do have rules about that! The smart ones at least. They don’t allow things like Avon books to be left out and about, and they don’t allow you to solicit your coworkers like that. If you have an HR department, you could totally complain!
I’m amazed at how easily people get suckered into these. I can understand wanting to get money “easily”, but it’s hard to imagine people being so easily manipulated. I know I’ve had to delete some “friends” off of Facebook (or at least hide their statuses) because they keep writing about their stupid new schemes and how we could all join in. Ummm… no thanks!
May 14, 2012 at 10:17 am
What I don’t understand is why law enforcement doesn’t crack down on these schemes. I reported one and nothing was done about it. I even gave them the time/place of a meeting.
May 14, 2012 at 10:56 am
Gail, thank you for this timely post.
I hope that Kathleen (from a previous thread) has researched Primerica before investing her time, money, and energy into it. While not strictly a Pyramid scheme, the “multilevel marketing” setup prioritizes recruiting (thus alienating) family and friends.
As a “woman of independent means” (thanks, Gail), I really HATE people who are preying on women nearing retirement. Given how long we might live, and how drastically our financial needs might change during that time, there is pressure to turn small nest eggs into a bigger pool of funds quickly. My mother-in-law is grappling with putting a disappointing annuity to better use by investing it herself. But it is a BIG learning curve.
“Slow and steady” and “prepare for the worse and hope for the best” are unexciting, but worthwhile investment mottos. Good luck out there, and keep looking out for each other.
May 14, 2012 at 1:36 pm
I know I should feel sorry for these people that get “ripped off” but I don’t. Like all the suppose “smart” people that Bernie Madoff ripped off. We all would love to make more money fast, but when someone , especially in this economy, tells you that he or she can guarantee a certain % on your income run the other way and FAST. I was approached about this scheme in the 1990’s by my daughters 2nd grade teacher of all people. This lady had a long career in teaching and her husband took over a thriving family business. Once they got involved they kept telling me how great they were doing and how I should be involved with it too if I wanted to help out my family. Well needless to say after my daughter and son had gone into middle school I caught up to that 2nd grade teacher, she was still teaching even though she told me that when they joined she would only teach 2 more yrs than retire, and the husband sold the family business to also retire early, but now was working at a grocery store making less money then before. They both wised up but by that time had lost alot of money. I’m sorry if this sounds cruel but I didn’t feel sorry for them one bit.
May 14, 2012 at 2:01 pm
Many of home party companies are reputable companies in the network marketing industry. There is no “get rich quick” psychology in these companies. If you want to make a good income, you have to put the effort into it. If you are involved with a reputable company (The Pampered Chef is a Berkshire Hathaway company – Warren Buffet, and lia sophia is owned by the Kiam Family) and you are willing to work, you can make a very good living. If anyone tells you you can get rich quick, they are lying to you. These companies also train against “hounding” people to get them to do the parties or buy the products. That creates ill will and is counterproductive in the long run.
May 14, 2012 at 3:35 pm
Wow. Sounds like Social Security down here in the States. “New recruits provide the funding, or so-called returns, given to the earlier investors/recruits pushing them up the pyramid. The only way the pyramid scheme can generate returns is to bring in more suckers to feed the bottom tier”. Too bad I’m legally required to be a “sucker” by my government.
May 14, 2012 at 9:02 pm
My sister-in-law gets sucked into these things. She asked me to attend with her and I did once just to be able to know what they said so thatI could use their info to talk her out of it. My husband and I both attended and it is SSSOOO obvious what it was. The pyramid was actually right in front of everyone on the projector screen. I tried to talk her out of it, but she bought three “shares”, I think she recruited a few people but didn’t see any money. A few months later when it fell apart, the couple recruiting her fled the country.
May 16, 2012 at 5:55 am
Good Article. Actually pryramid schemes are illegal in Canada. Check out Bill C 34 and it’s in there.
As for research, yes do it and use common sense. Businesses all come in different forms so Gail’s advice what to look at is bang on. The track record and how people are doing is key.
Dont jump to conclusion without doing the research. Goto the better business bueruea and check them out.
Another thing that’s key is that every business big or small has a business structure. There is always someone at the top and then filters down. It’s not a pyramid right? It’s a matter of how comfortable you are in where you place on that structure.
Common sense, creating a solid plan and keeping the simple rule: money comes in and money goes out the house…How to make more money to come in the house is not a bad thing as long it’s not illegal!
May 18, 2012 at 5:01 am
[...] week Gail Vaz-Oxlade tackles Pyramid Schemes and why you need to avoid them at all [...]
May 22, 2012 at 9:19 am
@ Tessa – that’s a really negative way to look at things. Social Security was introduced by FDR to prevent another event like the Great Depression triggering the kind of poverty that once you’re dragged down to, you can’t escape. Seriously, read about hooverville and you’ll see what I’m talking about.
May 24, 2012 at 1:22 pm
@Geoff- I see it as an accurate description of a negative situation. Gail promotes being a woman of independent means. This naturally implies one does not depend on anyone, including the government, for financial security. I save for my own retirement and do not need or want the government taking a portion of my money to do it for me.
May 26, 2012 at 8:31 am
I was suckered into one of these years ago. A respected and well known local businesswoman held meetings in her home and told us she had spoken to lawyers and police to ensure it was all legitimate, and we just believed her at face value. This one didn’t require everyone to put money in, and they called it “Women helping women”. One woman “investor” would front the investment for a women who couldn’t afford it, and they would both be required to recruit people. It hurt a lot of relationships, and devastated some people financially.
October 18, 2012 at 8:12 pm
My wife has been conned into this. She has forwarded them hundreds of dollars so far, has given them our credit card information and have given them our bank account information, and god knows what else. I don’t know what to do. She won’t listen.
October 23, 2012 at 7:12 pm
Close your bank accounts and credit cards before it is too late.
December 19, 2012 at 9:26 pm
I have family members involved in this and it is far from a pyramid scheme. I have seen the success happen right before my eyes and they even show you why it isn’t a pyramid scheme. Don’t knock something until you really see what it is and don’t go in closed minded because no matter how great something is, if you go in with a predetermined mind set you can make anything is scam or a pyramid scheme. Doesn’t your boss at work make more money than you? Or the CEO of the company you work at? Everyone starts at some position close to the bottom with any employer. The only way this turns in to something negative is if you let yourself fail at it. LIFE is far from any scam folks and the worst you could lose because you didn’t put in the effort is 49.99. Go find a business you can start for that or less.
January 21, 2013 at 5:24 pm
@Brandon,
Nice words coming from someone directly involved (I don’t buy in to the “My Family Members” ). Go propagate this business scheme and you might as well start having them buy into the company themselves through a Piloting Franchising Scheme. Just invest 68$ into a license and come to our “Special Meetings” where you speak with millionaires. It is just a bunch of garbage that involves taking advantage of a person by pumping narcissism into them, then having them sell your product.
January 23, 2013 at 9:04 pm
Well they do sell products, they also sell the prescription. They have a business model, and make no claim to get rich over night. Networking is a large part of their system, but this is the truth in any business. They’ve never taken money from people’s checking accounts as claimed earlier, so why is L.I.F.E. a scam?
January 26, 2013 at 6:06 pm
It’s a pryamid scam.
A pryamid scam is a scam because it relies on recruitment. The people at the top make all the money, and they people at the bottom make nothing, even though they’re promised financial success.
Just because something sells products doesn’t automatically exclude it from being a pryamid scam. A true business relies on purchases from outside the company, if the “business model” relies mostly on recruitment, and the majoirity of the sales are to people to distributors, it’s a pryamid scam.
For a business to be sucessfuly, true marketing should rely on obtaining customers, not recruiting other distributors.
I suggest not trying to fool Gail followers.
March 22, 2013 at 12:47 am
My definition of insanity is doing the same thing expecting different results. Reading all these comments, a man must wonder, where is our country going? We’ve become a community of bitter people painting a group of people because of one person’s interpretation of a business. We’re too quick to point the fingers because we “feel” uncomfortable. Buy the book of Business For Dummies because we are faced with real pyramid schemes and we don’t have to go too far. Many of us work for companies where those who get paid the most is always where? Yep, on top. Yet we accept it.
I’ve invested money into many endeavors. Many times I never saw a dime and finally I find a business that focuses on self improving and helping others get out of their messes. A business that requires you to help people walk through a business system. Call it recruiting if you’d like. We probably got recruited by a friend to join Facebook but thought nothing of it, right? It’s nice to be around an environment of people from different occupations (doctors, mechanics, nurses,homemakers, etc) come together to help each other grow in whatever areas so they can reach their dreams. Isn’t that what this country is all about? When did we stop dreaming? Are we that busy? Statistics show that 100,000 hrs of our lifetime is spent at our jobs, 25,000hrs on our significant others, and 10,000 hrs on our kids. There’s something wrong with that. I’ve decided to change myself. When will you decide?
Ramon Maisonave