A pyramid scheme is an unsustainable business where people are rewarded for enrolling others into a business that offers a non-existent or worthless product.
How does a pyramid scheme fraud work?
A fraudster advertises a multi-level investment scheme that offers extraordinary profits for little or no risk. You are required to pay a fee to enter the investment scheme.
You are then required to recruit friends or family members to enter the scheme as well. If you do this successfully, you are paid out of their receipts. They are then told to recruit others to keep the chain going.
Your money is not actually invested in any product. Instead, it is simply passed up the chain of investors. Because pyramid schemes are unauthorised and make no profits, you are very unlikely to recover any lost investment. While the fraudster at the top will collect most of the profits, those who entered the scheme later end up losing out.
How can I recognise a pyramid scheme fraud?
- If you are considering any type of investment, always remember: High returns can only be achieved with high risk
- Legitimate trading schemes rely on valuable goods and services, while illegal pyramid schemes focus simply on recruiting more and more investors
- Pyramid schemes often involve products that are overpriced and have no real resale value. You should think about the true value of your investment before convincing friends and family to join the scheme
- Fraudsters often use strange investment jargon to distract you from the true nature of the scheme. Famous examples include the airplane game fraud, where investors were labeled as captain, co-pilot, crew etc. Sometimes the schemes refer to the investment process as gifting
- Using hard-sell techniques. Fraudsters try to pressure you into making rushed decisions, giving you no time to consider the nature of the investment
- Fraudsters aim to build an air of legitimacy around their business. This means they will often use technical jargon, impressive job titles and mock websites to look credible. Resolve any suspicions you might have about a scheme’s authenticity by investigating the company’s status and contact details.
What should I do?
- If you believe you are actively participating in a pyramid scheme, break off contact with the fraudsters immediately and do not invest any more money
- If you have given the fraudsters your bank account details, alert your bank immediately
- Keep any written communications you have received from the pyramid scheme. They may help you give evidence to the authorities
- Report the fraud to Action Fraud
- Be aware that you are now likely to be a target for other frauds. Fraudsters often share details about people they have successfully targeted or approached, using different identities to commit further frauds
- People who have already fallen victim to fraudsters are particularly vulnerable to the fraud recovery fraud. This is when fraudsters contact people who have already lost money through fraud and claim to be law enforcement officers or lawyers. They advise the victim that they can help them recover their lost money - but request a fee.