Common Types of Fraud and Scam: Ponzi And Pyramiding Scam

Ponzi scheme organizers lure prospective investors with high returns. ​

What is a Ponzi Scam?

A scammer pretends to be a successful investment manager, owner or representative of a bogus investment company, or head or member of a reputable organization but, in reality, does not have an existing investment portfolio. The scammer would offer high returns in a short period of time, promising guaranteed profits with little or no risk of loss. The scammer is usually a skilled, charming, and convincing communicator who encourages investors to also invite others to invest and promises commissions for new recruits.

What is a Pyramiding Scam?

Scammers convince investors to buy an investment product, and promise high earnings over a short period. Investors are required to recruit other buyers as their earnings increase based on the number of new recruits. Scammers normally pay investors back during the initial stages to appear legitimate and encourage more investors to buy the product. The “pyramid” eventually collapses when the money coming from new investors is not enough to cover the payouts to earlier investors. 

Remember

• Investment offers that sound “too good to be true” are usually scams.
• Even legitimate investment companies cannot double or triple your
• money over a short period of time and can never guarantee returns.
• Real investments are subject to the risk-return principle: The higher
• the expected return, the higher the potential risks.
• Do your own research about an investment company, its investment
• products, and authorized brokers or representatives.
• Do not engage in an investment opportunity if you do not fully understand how it works, how it earns, nor its risks and benefits.
• Do not let anyone pressure you into putting your hard-earned money into an investment opportunity.
• Always get and keep appropriate binding documentation and proofs (physical or digital forms) of your investments.
• Verify with the Securities and Exchange Commission (SEC) whether the company is registered and licensed to offer investment products.
• Check with SEC whether the company representative is a licensed investment broker or dealer.
• Report suspicious companies, persons, and transactions to the SEC. 

How to know if MultiLevel Marketing is a Scam?

Caution! If the answer to any of the following questions is No, it might be a scam!

• Is there a product?
• Are commissions paid on sale of products and not on registration/
• entry fees?
• Is the intent to sell a product not a position?
• Is there no direct correlation between the number of recruits and
• compensation?
• If recruitment were to be stopped today, will the participants still
• make money?
• Is there a reasonable product return policy?
• Do products have fair market value?
• Is there a compelling reason to buy?