Pyramid schemes are similar to chain letter or network marketing, holding out the promise of quick and easy wealth. You may be approached by e-mail, letter or phone. You may receive an invitation to attend an investment seminar, possibly recommended by someone you know.
At first glance, a pyramid scheme may look like a normal business or investment activity. The difference between a pyramid scheme and legal network marketing, for example, is that the income of those who join a pyramid scheme depends on payments from new members they recruit rather than on products or services sold.
Starting packs are just props
The products marketed in pyramid schemes that resemble network marketing are no more than props to make the operation look normal and legal. The products themselves are overpriced, of poor quality, worthless, or difficult to sell. The real purpose is to collect money from new members, who pay for their starting packs.
A new member pays a membership or other initial fee that goes to people higher up the pyramid. That person is then supposed to receive a share of the fees paid by new members who join further down.
Participants can only make money if the number of members grows indefinitely. In reality, all pyramid systems break down at some point as their growth comes to a halt, with those at the base of the pyramid losing the money they have invested.
Pyramid schemes are illegal under the Money Collection Act in Finland, and are also prohibited elsewhere in the world.
- Be careful if you are asked to get involved in an activity that will earn you income based on new members you recruit, or if you are promised that your income will grow as the membership base expands.
- Be careful if new members are asked to purchase expensive marketing or starting packs that are said to guarantee a good income. The pack usually consists mainly of marketing materials, a description of an investment strategy or other information of no verifiable value.
- Find out about the background of the party performing the marketing and demand justifications for the marketing claims. You may come across criticism of the operation on the Internet, or obtain it from the authorities. The mere fact that an operation is not mentioned on a warning list, however, is no guarantee of its legitimacy. As for positive comments on discussion boards about experiences of the operation, they may have been placed there by the marketers themselves.
- Be careful if you are promised a sure way of becoming rich quickly, based on assurances that the operation is a legal form of investment, with grand claims being made about how such-and-such a policeman, doctor or other respectable person is involved. Be sceptical about the marketing of "miracle products" with unheard-of weight loss or health benefits, for example.
- If an operation involves selling products, find out exactly what these products are, how much you have to invest in order to join, what the target market is, and whether the products are competitively priced and likely to appeal to a large audience.
- Do not be too quick to believe assurances and recommendations from people who talk about how much they have earned. Even if an operation is recommended by a friend or relative, that is no guarantee that the arrangement is sound – your friend may have been swindled too.
- Do not agree to join an operation or pay a starting fee at an "investment seminar" or other marketing event at which you are pressured to make a decision. Always demand time to consider the matter, discuss it with people close to you, and seek out unbiased information.
If you suspect that you have come across a pyramid scheme or money collection in the guise of a business operation, contact the Finnish Police Administration's supervisory unit for lotteries and money collection.