The Latest Scams Circulating the Consumer World. Be warned. Be informed.
FEBRUARY2005
Pyramid Schemes
Pyramid schemes, also known as multi-level marketing schemes, are the U.S.'s most prevalent fraud.
How does it work?
People are asked to invest dollars with the promise that they will earn exceedingly high returns by recruiting new members into the group. Be aware that all pyramids are doomed to collapse because it's' impossible to keep getting fresh recruits who will pay to participate.
Is it legal or illegal?
In legal, multi-level, marketing plans, profits come primarily from selling goods and services to consumers. Legitimate, multilevel marketing plans only succeed if they offer products or services that customers want. Remember, all successful businesses depend on repeat sales. If there isn't constant demand for the products or services, the business will fail.
In illegal, multi-level marketing plans the profits come from recruiting new members. Be aware that some pyramids are disguised as gifting clubs. New recruits give money to current members with the promise that they will receive money from future recruits.
Play it Safe
1. Don't join pyramid schemes that require investments. An investment may also be called a bookkeeping fee or membership charge.
2. Be wary of big earnings claims. No one can guarantee how much you'll make. That depends on how hard you work and whether consumers like your products or services.
3. Check it out before you commit. Print out all the information, and contact your state or local consumer protection agency for advice.
4. Don't buy more supplies than you need. Some fraudulent companies try to force distributors to pay for more products than they can reasonably sell.
Information in the February Fraud of the Month was brought to you by the National Consumer League's Internet Fraud Watch and the Washington Office of the Attorney General, Consumer Protection Division.
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