The new age of Pyramid Schemes scamming in the bad economy

Pyramid schemes – also referred to as Ponzi schemes (after Charles Ponzi, who ran a very famous one in 1920) – are basically structured such that they use the entry fees from participants to make profits for earlier entrants to the scheme.

They have no real product, the only real money being used is the entry fee. Be careful, some pyramid schemes will have very tenuous “products” which cannot really be sold to anyone who isn’t participating in the scheme. That’s why, when you are considering any investment, online or offline, a good product is one of the key criteria you should look for.

Let’s have a look at Charles Ponzi’s famous pyramid scheme. It’s a perfect illustration of what you should avoid.

The 1920’s Ponzi Scheme
Carlo (Charles) Ponzi was born in Italy in 1882 and he emigrated to the United States in 1903. After travelling around the country for about 14 years, during which time he held a wide variety of jobs, Ponzi eventually settled in Boston in 1917.

A couple of years later, in 1919, as part of his research into a business venture which would involve publishing a magazine, Ponzi was in correspondence with a business associate in Spain. At one point in their correspondence, Ponzi’s Spanish associate included an international postal reply coupon for Ponzi’s use. The coupon was included so that Ponzi could take it to a US post office and exchange it for postage stamps.

The Difference Between A Ponzi Scheme And A Pyramid Scheme
Today the terms Ponzi scheme and pyramid scheme are often used to mean the same thing. However, there is a slight difference.

A true Ponzi scheme usually promotes what appears to be a real investment opportunity which investors may contribute to without actually being an affiliate, distributor etc. A pyramid scheme, on the other hand, usually requires that participants make a payment for the right to recruit other people into the scheme, at which point they will receive money.

At the end of the day, this is splitting hairs a little. All you need to know is that people lose money in either of these schemes. Avoid them like the plague.Evaluate your business opportunities in a logical manner – and pay particular attention to the product or range of products on offer – and you won’t get caught up in one of these illegal schemes.

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A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula The essential idea is that the mark, Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the ”business” expands.

Such ”businesses” seldom involve sales of real products or services to which a money value might be easily attached. However, sometimes the ”payment” itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. Clearly, the flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the “pharaoh”) and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Of course, the worst off are at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves.

Some network or multi-level marketing businesses, which sell real products and rely on the price differentials between the manufacturer’s dispatch ramp and the retail counter, may verge on the borderline between ‘’smart” and ‘’scam”. When a pyramid does involve a real product, such as Holiday Magic cosmetics in the United States in the 1970s, new “dealers” who’ve paid enrolling fees are encouraged, in addition to selling their products, to become “managers” and recruit more new “d

l also pay enrolling fees. As the number of layers of the pyramid increases, new recruits find it harder and harder to sell the product because there are so many competing salespeople. Those near or at the top of the pyramid make a lot of money on their percentage of the enrolling fees and on commissions for the supplied products, but those at the bottom are left with inventories of products they can’t sell.

http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv12.shtm

Compensation plans

Companies have devised a variety of MLM compensation plans over the decades.

• Stairstep Breakaway plans This type of plan is characterized as having representatives who are responsible for both personal and group sales volumes. Volume is created by recruiting and by retailing product. Various discounts or rebates may be paid to group leaders and a group leader can be any representative with one or more downline recruits. Once predefined personal and/or group volumes are achieved, a representative moves up a commission level. This continues until the representative’s sales volume reaches the top commission level and “breaks away” from their upline. From that point on, the new group is no longer considered part of his upline’s group and the multi-level compensation aspect ceases. The original upline usually continues to be compensated through override commissions and other incentives.

Anatomy of the Pyramid Scheme

http://www.articlesbase.com/internet-articles/get-paid-to-shop-scams-490675.html

Pyramids are inherently deceptive. Deception in the pyramid involves lying to others and lying to oneself. In the pyramid sales schemes, for example, the real business is not vitamins or water filters, but recruiting other investor/salespeople. Almost no one actually makes money in a program hyped as the “opportunity of a lifetime.” The speakers on the stage are not making the incomes they claim they are. This is not a program of “winners” at all. Indeed, 50-70% will quit the program in the first year and 99.9% actually lose money!

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