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. 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 may be liable to a fine of up to €150,000 or up to five years’ imprisonment 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.
Example of a traditional pyramid scheme
- The pyramid has 10 levels and each person who joins must recruit 10 more people. You start at the bottom with nine other new recruits.
- You and the other nine new members of the scheme need to recruit 100 people between you. Those 100 people would then need to recruit 1,000 people for you to move up another level. Then those 1,000 people would need to recruit 10,000 people.
- For you to get to the top of the pyramid, the scheme would need 10 billion people. In other words, it’s impossible.
- Then when the pyramid scheme collapses (and it always does), those at the bottom – the last to join – lose everything. The scheme might work for the handful of people at the start, but everyone else down the chain is ripped off.
Multi-level marketing schemes
You should also be cautious when considering involvement 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.
Some schemes may be perfectly legitimate, but others are very similar to pyramid schemes.
What to watch out for
- Your income from the scheme may be 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 the Gardaí immediately and tell us about it.