 |
 Articles |
|
Illegal Pyramid Scheme |
Pyramid selling is a fraud. It is a mechanism by which promoters of so-called
"investment" or "trading" schemes enrich themselves in a geometric progression
through the payments made by recruits to such schemes.
Related deceitful schemes have been described in various international
jurisdictions as "chain letters,"
"snow balls," "chain selling," "money games,"
"referral selling" and "investment lotteries".
Numerous legislatures around the globe have proscribed pyramid selling. The
wording of relevant statutes, codes, articles, acts, regulations and the like
vary, but all contain the following core concept: A pyramid is a scheme in which
a recruit pays (an entry fee) for the opportunity to receive future benefits
(money or privileges) which are primarily derived from that recruit's (and/or
subsequent recruits') introduction of additional participants in the scheme,
rather than from the sale of products to consumers.
Thus, the scheme's rewards effectively come from the addition of new
participants and their investments, not from the sale and distribution of real
products to persons who actually use or consume them. No real trading in viable
goods or services takes place, and the scheme essentially involves an internal
redistribution of wealth from new entrants to the promoters. The scheme serves
no legitimate commercial function. The only "trade" being carried on is actually
in scheme participants' rights, and the redistribution of participants' entry
fees or investments.
Pyramid schemes are not commercially sustainable because they essentially assume
an inexhaustible flow of recruits - all willing to pay to enter the scheme and
to be enriched by subsequent recruits doing the same thing. As the number of
available recruits is finite, however, successive recruits have arithmetically
less chance of enrichment than the schemes' promoters. Consequently, such
schemes are usually short-lived and those who enter last have virtually no
chance of recovering their entry fee much less benefiting from the scheme.
Early pyramids were readily identified and successfully proscribed because of
their lack of tangible product. Subsequent fraudulent schemes, however, have
attempted to deceive the public and avoid prosecution by asserting that they are
genuine businesses operating a multilevel marketing plan since they "sell" goods
and services. Multilevel marketing is, of course, a well-recognized means of
compensating direct sellers for the sale of products to consumers, including
participants in the plan, through a network of independent distributors.
A closer inspection of a pyramid scheme's so called "products" typically reveals
that they have no real market value. This is because the products are often
"gimmicks" such as certificates, spurious training programs or magazine
subscriptions, illusory discounts, or over-priced and under-performing "miracle"
treatments and the like. Recruits are often obliged to "invest" in large
quantities of these products with no realistic prospect of marketing them to
actual consumers (or returning them for credit). Their investments, however,
generate substantial income for the promoter who enticed them into the scheme.
The following factors differentiate illegal pyramids from lawful Direct Selling
businesses:
- Legitimate direct selling
companies offer a genuine business opportunity based on the sale of quality
products to consumers. They routinely offer consumers satisfaction guarantees or
cancellation rights so that the consumer may return the product for replacement
or refund if the consumer is dissatisfied. Pyramids schemes have no such
commercially viable product sales base.
- Legitimate direct selling
companies strongly discourage overstocking of inventory and provide participants
leaving the plan with an opportunity to return any unused, saleable merchandise
to the company for a refund of not less than 90% of the salesperson's net cost.
In contrast, pyramid schemes often encourage or require large stocks of
non-refundable inventory and disappointed scheme participants are then left with
stock which they can neither sell nor return.
- Legitimate direct selling
opportunities may be taken up with minimal start-up costs and little or no
inventory investment. Even modest entry fees may be refundable if the new direct
seller decides not to pursue the opportunity. Conversely, pyramid selling
schemes often require high entry fees and/or substantial "investment" in
inventory, and neither are refundable. This is because pyramid operators make
their money from new recruits to their schemes.
- The sales and marketing plans
of credible direct selling companies are based on the progressive recognition
and reward of direct sellers for the development of a customer base for
consumption of the company's products. The development and stability of a direct
seller's business is dependent on satisfied consumers and fairly remunerated
direct selling network members. Pyramid schemes, on the other hand, offer
get-rich-quick schemes to induce participants to buy "ground-floor" or
"leadership" positions. In pyramid selling schemes there is no viable, long-term
business opportunity.
|
|
Reference:
http://www.dseidubai.com/index.php?option=com_content&task=view&id=19&Itemid=36 |
|
|
|