Pyramid schemes promise you quick and easy money in return for cash. But they are actually designed to con you into investing significant amounts of money which can never be recovered. You may be approached by email, letter, phone or online, or a friend might invite you to go to a meeting about it.
Pyramid schemes come in many forms, but they all work the same way – they make money primarily by recruiting people who all put money into the scheme. So for everyone to profit there would have to be an endless supply of people to join up – and there never is. Some pyramid schemes may also involve the sale of a product or service. When pyramid schemes collapse, people lose their money and personal relationships can also be affected.
Promoting or participating in a pyramid scheme is illegal under Irish law and if convicted, you could face a fine of up to €150,000 or up to five years in prison, or both.
How the scam works
- You are tempted by the promise of “free” money if you invest in the scheme.
- When you “buy in”, your money goes to those above you in the pyramid.
- In order to move up the pyramid you are usually asked to recruit new members, and they become a new level of the pyramid below you. It can involve large numbers of people paying small sums of money over a period of time.
- In theory, as you go further up the pyramid you are supposed to get more money but this does not happen because there are not enough people to join the scheme.
|Darren is recruited into a pyramid scheme by an old school friend along with nine other people. They each invest €1,000 to join and find out after they have handed the money over that the only way to get it back it is for each of them to recruit 10 more people.
Darren and the other nine new recruits would need to convince 100 other people to take part and as a result these 100 would need to convince 1,000 people, and so on. This very quickly becomes mathematically impossible to achieve and when the pool of potential people runs out the pyramid collapses and those who have joined most recently lose everything.
Multi-level marketing schemes
You should also be cautious about getting involved in “network” or “matrix” marketing schemes. These are marketing schemes that sell products or services through a network of distributors but you also get incentives for recruiting other people into the scheme.
In multi-level or network marketing, individuals sell products to the public — often by word of mouth and direct sales. Typically, individuals earn commission, not only for their own sales, but also on sales made by the people they recruit to the scheme.
Not all multi-level marketing schemes are legitimate. If the money you make is based on your sales to your customers, it may be legitimate. If the money you make is based on the number of people you recruit and what you sell to them, it’s probably not. It could be a type of pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.
What to watch out for
- Your income from the scheme is based on introducing other people to the scheme rather than selling a product or service.
- Be sceptical if you are told about the scheme by word of mouth or personal invitation rather than it being openly advertised.
- If there is a “hard sell” by the promoters telling you how much you can make. Take some time to do some research on the company or scheme.
- If information is provided at a meeting, but there is little, if any, material you can take home and study, do not agree to join the scheme there and then.
Who to contact
If you are invited to join any kind of pyramid promotional scheme you should tell us about it.