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DEFINITION OF 'PYRAMID SCHEME'

An illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, given to the earlier investors/recruits above them.

INVESTOPEDIA EXPLAINS 'PYRAMID SCHEME'

A pyramid scheme is initiated by an individual or a company that starts recruiting investors with an offer of guaranteed high returns. As the scheme begins, the earliest investors do receive a high rate of return, but these gains are paid for by new recruits and are not a return on any real investment.

From the day the scam is initiated, a pyramid scheme's liabilities exceed its assets. The only way it can generate wealth is by promising extraordinary returns to new recruits; the only way these returns can be paid is by getting additional investors. Invariably these schemes lose steam and the pyramid collapses.

http://www.investopedia.com/terms/p/pyramidscheme.asp

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The eight passengers must each pay (or "gift") a sum (e.g., $5,000) to join the scheme. This sum (e.g., $40,000) goes to the captain who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they advance through the crew and co-pilot tiers and exit the scheme as a captain. Therefore, the participants in the bottom three tiers of the pyramid lose their money if the scheme collapses.

If a person is using this model as a scam, the confidence trickster would take the majority of the money. They would do this by filling in the first three tiers (with one, two, and four people) with phony names, ensuring they get the first seven payouts, at eight times the buy-in sum, without paying a single penny themselves. So if the buy-in were $5,000, they would receive $40,000, paid for by the first eight investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible to allow them to skim even more from it before it collapses.

Although the "captain" is the person at the top of the tree, having received the payment from the eight paying passengers, once they leave the scheme they are able to re-enter the pyramid as a "passenger" and hopefully recruit enough to reach captain again, thereby earning a second payout. --Wiki

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imbis manimahong kwarta, manimaho ta'ng iti kon mag apil-apil ta ani?...

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http://www.scamwatch.gov.au/


What is a pyramid scheme?

Pyramid schemes are illegal and very risky ‘get-rich-quick’ schemes that can cost a lot of people a lot of money.

Promoters at the top of the pyramid make their money by having people join the scheme. Then they pocket the fees and other payments made by those who join under them.

In a typical pyramid scheme, a member pays to join. The only way for the member to ever recover any money is to convince other people to join up and to part with their money as well.

In contrast, people in legitimate multi-level marketing earn money by selling genuine products to consumers, not from the recruiting process. Be aware though, some pyramid scheme promoters disguise their true purpose by introducing products that are overpriced, of poor quality, difficult to sell or of little value. Making money out of recruitment is still their main aim.

People often hear about pyramid schemes from friends, family or neighbours. Normally, pyramid schemes recruit members at seminars, home meetings, over the phone or even by mail. Now email, usually as spam, is increasingly used to recruit members as well.

For the scheme to work so that everyone can make a profit there would have to be an endless supply of new members. In reality, the number of people willing to join the scheme (and therefore, the amount of money coming into the scheme) dries up very quickly. When the pyramid collapses (and they all do) relationships, friendships and even marriages can be destroyed over money lost in the scam.

In Australia, it is against the law not only to promote a pyramid scheme, but even to participate in one.

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Protect yourself from pyramid schemes

If it looks too good to be true—it probably is.

Use your common sense: the offer may be a scam.

Do not let anyone pressure you into making decisions about money or investments: always get independent financial advice.

You can contact your local office of fair trading, ASIC or the ACCC for assistance.

Beware of products or schemes that claim to guarantee income or winnings.

Remember that family members and friends may try to involve you in a scam without realising that it is a scam: you should seek independent advice (from a lawyer or financial adviser).

As well as following these specific tips, find out how to protect yourself from all sorts of other scams.

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Decide

If you believe that an offer is a pyramid scheme, do not take part—it is very likely that you will lose your money and you could be breaking the law. If the offer was made to you by a friend or family member, you should also warn them that they might be involved in a risky and illegal scam.

If you believe that the offer could be a legitimate multi-level marketing scheme, make sure you get independent advice before signing up or investing any money.







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Defending EmGoldex and failing miserably
By ANDY UYBOCO
FREETHINKING ME


I RECEIVED a lot of feedback on my previous article, "Is EmGoldex a Scam?" both in the comments section, as well as via email. Of particular interest to me were the staunch defenders who proclaimed that my logic "sucks" and that I didn't do the proper research, and they proceeded to explain how I wrongly described this or that specific detail in their payout scheme.

Truth to tell, I expected this because as I have already mentioned, I have seen this happen over and over again in the past. It's like knowing the secret to a magic trick. Once you've seen it, then you know how it's done and even if the magician does variations to the trick, you can still probably figure out how it's done, because you know the basic principle.

In other words, I don't need to fully understand the marketing plan of EmGoldex or whatever other company out there. All I need to know is the gist of it, as well as some knowledge of its products, and it’s easy to tell if it’s a scam or not. Perhaps it's my critics who should recheck their logic and do their proper research on pyramid schemes.

I was, after all, a teacher of algebra, geometry, physics and computer programming. So I have every reason to be very confident with the soundness of my logic.

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But as I have shown in the last article, for every person who exits, there are 14 other people who are waiting -- in other words, they haven’t earned anything yet. What they don’t know is that the money they invested was used to pay out the exiting person and the rest goes to the pocket of the owners.

Ah, but they will say that it doesn’t really go into their pockets because they have to pay out the next exiting person. True, but remember that the next person can’t exit unless there are new people coming in (or old people who "reinvested") so there's always fresh cash coming in and only a fraction of that is used to pay out the exiting person.

Now, experienced schemers will rarely admit that they make money from recruitment (because they know that they will be trapped by the definition of a pyramid scheme). Therefore, they will try to persuade you that they are really in the business of buying and selling gold, and that is how the company makes money.

Again, that is patently false and is relatively easy to demonstrate. The historical price per gram of gold can be found in the goldpriceoz.com website, which uses the London gold fixing price as its reference.

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