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8 warning signs of a pyramid scheme


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Have you ever been approached for a “business opportunity” that promised you would make a fortune from home? This is a subtle warning that someone may be trying to recruit you as part of a pyramid scheme.

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According to the SEC, a pyramid scheme is a type of fraud in which participants profit almost entirely by recruiting others into their schemes. How do you know if someone is trying to recruit you into an MLM or MLM program?

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Watch out for these common MLM warning signs.

nothing to sell

What the hell are you selling? In a pyramid scheme, no real products or services are sold, the SEC said. Fraudsters sometimes give a product or service a fancy-sounding name to make the company appear legitimate. Proceed with caution if you find that no underlying product or service is being sold, or that the item being sold is difficult to value, speculative, or improperly priced.

Some fraudsters choose fancy-sounding “products” to make it harder to prove that the company is a fake pyramid scheme.

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Recruitment is the main focus

Many MLM and MLM programs emphasize the importance of recruiting new players. A program that emphasizes recruiting participants and paying a fee to join the program is likely to be a pyramid scheme.

Fast money

Earlier, we mentioned that it is tempting to try a pyramid scheme because of the promise of easy money.

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However, the SEC says that if you are compensated for work such as being paid, recruiting others, or placing online ads on unknown websites, you may be part of an illegal pyramid scheme. Be wary of promises of easy money.

The promise of high returns in the short term

Any program that provides quick cash quickly is questionable. According to the SEC, that could mean commissions come from new hire money, rather than revenue generated from product sales. Be cautious when promoting get-rich-quick and exponential returns.

complex commission structure

How will you be compensated? One of the biggest hallmarks of a pyramid scheme is a complex commission structure. Use caution unless the commission is based on a product or service you or your new hire sells to someone outside the plan.

No proven income from retail sales

You have the right to ask to see documents, such as financial statements audited by the CPA, that show the business generates revenue by selling its products or services to people outside the plan. If the business is reluctant to share these documents, it is likely to be a pyramid scheme.

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need your buy

Joining the program may require you to pay to join. Treat any required buy with caution, even if the buy is a nominal one-time or recurring fee. Be aware of other fees you may be asked to pay, such as hard-to-sell and non-returnable inventory levels or expensive training seminars.

you are not allowed to ask questions

Do you have questions about this amazing business opportunity? Do you want to learn more and can’t rely on the terms used during the demo, like “pre-launch” or how to “go under the hood”?

Demonstrations of pyramid schemes are often high energy and low substance. If you cannot or discourage asking questions, your best bet may be to avoid this “opportunity” altogether.

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