Easy ways to make money for kids

From Wikipedia, the free encyclopedia

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered. Pyramid schemes are a form of fraud.[1]

Pyramid schemes are illegal in many countries including Albania, Denmark, Australia,[2]Brazil, Bulgaria, Canada, China,[3]Colombia,[4]France, Germany, Hungary, Iceland,[citation needed]Iran[5], Italy,[6]Japan,[7]Malaysia, Mexico, Nepal,[citation needed]The Netherlands,[8]New Zealand,[9]Norway[10], the Philippines,[11]Poland, Portugal, Romania,[12]South Africa,[13]Sri Lanka,[14]Switzerland, Taiwan, Thailand,[15] the United Kingdom, and the United States.[16]

These types of schemes have existed for at least a century some with variations to hide their true nature and there are people who hold that multilevel marketing, even if it is legal, is nothing more than a pyramid scheme.[17][18][19][20] There have even been charges by people like economist Thomas Sowell that the United States Social Security program itself is nothing more than a legalized pyramid scheme.[21]

• 1 Concept and basic models
  • 1.1 The “Eight-Ball” model
  • 1.2 Matrix schemes
• 2 Connection to multi-level marketing
• 3 Notable recent cases
  • 3.1 Internet
  • 3.2 Others
• 4 See also
• 5 References
• 6 External links

[edit] Concept and basic models

A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit. The essential idea is that the mark, Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the “business” expands.

Such “businesses” seldom involve sales of real products or services to which a monetary value might be easily attached. However, sometimes the “payment” itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. The flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the “pharaoh”) and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Individuals at the bottom of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.

[edit] The “Eight-Ball” model

Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases. The scheme requires a person to recruit two others, who must each recruit two others, who must each recruit two others.

Prior instances of this scheme have been called the “Airplane Game” and the four tiers labelled as “captain,” “co-pilot,” “crew,” and “passenger” to denote a person’s level. Another instance was called the “Original Dinner Party” which labelled the tiers as “dessert,” “main course,” “side salad,” and “appetizer.” A person on the “dessert” course is the one at the top of the tree. Another variant, “Treasure Traders,” variously used gemology terms such as “polishers,” “stone cutters,” etc. or gems like “rubies,” “sapphires,” “diamonds,” etc.

Such schemes may try to downplay their pyramid nature by referring to themselves as “gifting circles” with money being “gifted.” Popular schemes such as the “Women Empowering Women”[22] do exactly this.

Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + in the scheme – with the Airplane Game as the example, the person at the top of this tree is the “captain,” the two below are “co-pilots,” the four below are “crew,” and the bottom eight joiners are the “passengers.”

The eight passengers must each pay (or “gift”) a sum (e.g. $1000) to join the scheme. This sum (e.g. $8000) 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. This requires that 8 others have been persuaded to join underneath them.

Therefore, the bottom 3 tiers of the pyramid lose their money if the scheme collapses. Consider a pyramid consisting of tiers with 1, 2, 4, 8, 16, 32, and 64 members. The highlighted section corresponds to the previous diagram.

If a person is using this model as a scam, the confidence trickster would make the lion’s share of the money. They would do this by filling in the first 3 tiers (with 1, 2, and 4 people) with phoney names, ensuring they get the first 7 payouts, at 8 times the buy-in sum, without paying a single penny themselves. So if the buy-in were $1000, they would receive $8,000, paid for by the first 8 investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible in order to allow them to skim even more from it before the collapse.

Other cons may also be effective. For example, it is fathomable but not cited or reported anywhere that rather than using false names, a group of seven people may agree to form the top three layers of a pyramid without investing any money. They then work to recruit eight paying passengers, and pretend to follow the pyramid payout rules, but in reality split any money received. Ironically, though they are being conned, the eight paying passengers are not really getting anything less for their money than if they were buying into a “legitimate” Eight-Ball scheme which had split off from a parent. They truly are now in a valid eight-ball, and have the same opportunity to earn a windfall if they can successfully recruit enough new members and reach captain.

It is clear by the above description that the Eight-Ball model is, in fact, not a pyramid scheme. As stated in this section, there is no one at the top. Rather, the “captain” leaves and is able to re-enter as a “passenger” if he or she decides to.

[edit] Matrix schemes

Matrix schemes use the same fraudulent non-sustainable system as a pyramid; here, the participants pay to join a waiting list for a desirable product which only a fraction of them can ever receive. Since matrix schemes follow the same laws of geometric progression as pyramids, they are subsequently as doomed to collapse. Such schemes operate as a queue, where the person at head of the queue receives an item such as a television, games console, digital camcorder, etc. when a certain number of new people join the end of the queue. For example ten joiners may be required for the person at the front to receive their item and leave the queue. Each joiner is required to buy an expensive but potentially worthless item, such as an e-book, for their position in the queue. The scheme organizer profits because the income from joiners far exceeds the cost of sending out the item to the person at the front. Organizers can further profit by starting a scheme with a queue with shill names that must be cleared out before genuine people get to the front. The scheme collapses when no more people are willing to join the queue. Schemes may not reveal, or may attempt to exaggerate, a prospective joiner’s queue position which essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis.

[edit] Connection to multi-level marketing

The network marketing or multi-level marketing business has become associated with pyramid schemes as “Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure.” [23] and the fact while some people call MLMs in general “pyramid selling”[24][25][26][27][28] others use the term to denote an illegal pyramid scheme masquerading as an MLM.[29]

The FTC warns “Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products.” [30] and states that research is your best tool and gives eight steps to follow:

1. Find — and study — the company’s track record.
2. Learn about the product
3. Ask questions
4. Understand any restrictions
5. Talk to other distributors (beware shills)
6. Consider using a friend or adviser as a neutral sounding board or for a gut check.
7. Take your time.
8. Think about whether this plan suits your talents and goals[31]

Some believe MLMs in general are nothing more than legalized pyramid schemes[17][18][19][20] making the issue of a particular MLM being legal or not moot.

[edit] Notable recent cases [edit] Internet

In 2003, the United States Federal Trade Commission (FTC) disclosed what it called an internet-based “pyramid scam.” Its complaint states that customers would pay a registration fee to join a program that called itself an “internet mall” and purchase a package of goods and services such as internet mail, and that the company offered “significant commissions” to consumers who purchased and resold the package. The FTC alleged that the company’s program was instead and in reality a pyramid scheme that did not disclose that most consumers’ money would be kept, and that it gave affiliates material that allowed them to scam others.[32]

WinCapita was a scheme run by Finnish criminals that involved about â‚ 100 million.

[edit] Others

In early 2006 Ireland was hit by a wave of schemes with major activity in Cork and Galway. Participants were asked to contribute â‚ 20,000 each to a “Liberty” scheme which followed the classic eight-ball model. Payments were made in Munich, Germany to skirt Irish tax laws concerning gifts. Spin-off schemes called “Speedball” and “People in Profit” prompted a number of violent incidents and calls were made by politicians to tighten existing legislation.[33] Ireland has launched a website to better educate consumers to pyramid schemes and other scams.[34]

On November 12, 2008 riots broke out in the municipalities of Pasto, Tumaco, Popayan and Santander de Quilichao, Colombia after the collapse of several pyramid schemes. Thousands of victims had invested their money in pyramids that promised them extraordinary interest rates. The lack of regulation laws allowed those pyramids to grow excessively during several years. Finally, after the riots the Colombian government was forced to declare the country in economical emergency in order to seize and stop those schemes. Several of the pyramid’s managers were arrested, and these are being prosecuted for the crime of “illegal massive money reception.”[35]

November 2008: The Kyiv Post reported on November 26, 2008 that American citizen Robert Fletcher (Robert T. Fletcher III; aka “Rob”) was arrested by the SBU (Ukraine State Police) after being accused by Ukrainian investors of running a Ponzi scheme and associated pyramid scam netting $20 million in US dollars. (The Kiev Post also reports that some estimates are as high as $150M USD.)

[edit] See also

• Advance-fee fraud
• Autosurf
• BurnLounge
• Cobra Group (company)
• High-yield investment program
• Holiday Magic
• Make Money Fast
• Multi-level marketing
• Ponzi scheme – A similar type of fraud, which involves making payment to a central originator, who pays returns to investors from their own money or money paid by subsequent investors, rather than from any actual profit earned.
• Success University

[edit] References

1. ^ Common Fraud Schemes: Pyramid Scheme Federal Bureao of Investigation
2. ^ Trade Practices Amendment Act (No. 1) 2002 Trade Practices Act 1974 (Cth) ss 65AAA – 65AAE, 75AZO
3. ^ Regulations for the Prohibition of Pyramid Sales
4. ^ “Colombia scam: ‘I lost my money’”. BBC News. November 18, 2008. http://news.bbc.co.uk/1/hi/world/americas/7736124.stm. Retrieved April 12, 2010.
5. ^ Key GoldQuest members arrested in Iran Airport
6. ^ Legge 17 agosto 2005, n. 173 (in Italian)
7. ^ ç„ é™é€ éŽ–è ›ã é˜ æ ã é– ã™ã‚‹æ •å ‹ (in Japanese)
8. ^ Sentence by the High Council of the Netherlands regarding a pyramid scheme
9. ^ Laws and Regulations Covering Multi-Level Marketing Programs and Pyramid Schemes Consumer Fraud Reporting.com
10. ^ http://www.lovdata.no/all/tl-19950224-011-004.html#16
11. ^ [1] Investors in Philippine Pyramid Scheme Lose over $2 Billion
12. ^ Explozia piramidelor Ziarul Ziua, 12.07.2006
13. ^ [2] Pyramid Schemes
14. ^ Pyramid Schemes Illegal Under Section 83c of the Banking Act of Sri Lanka Department of Government Printing, Sri Lanka
15. ^ à ‚à ‰à à à à à €à žà à ˆà à €à •à à à ƒà ™à à à šà šà ˜à à à à à ˆà ‚à à à •à à ‡à à à à ˜à à à à à ˆà žà à à à à à ” by Thai Direct Selling Association (in Thai)
16. ^ Pyramid Schemes Debra A. Valentine, General Counsel, Federal Trade Commission
17. ^ a b Carroll, Robert Todd (2003). The Skeptic’s Dictionary: A Collection of Strange Beliefs, Amusing Deceptions, and Dangerous Delusions. Wiley. pp. 235. ISBN 0471272426.
18. ^ a b Coenen, Tracy (2009). Expert Fraud Investigation: A Step-by-Step Guide. Wiley. pp. 168. ISBN 0470387963.
19. ^ a b Ogunjobi, Timi (2008). SCAMS – and how to protect yourself from them. Tee Publishing. pp. 13–19.
20. ^ a b Salinger (Editor), Lawrence M. (2005). Encyclopedia of White-Collar & Corporate Crime. 2. Sage Publishing. pp. 880. ISBN 0761930043.
21. ^ Sowell, Thomas (March 23, 2002). “Social Security: The Enron That Politicians Have In the Closet”. Capitalism Magazine (Bahamas 2000, Ltd. published). http://www.capitalismmagazine.com/index.php?news=1505. Retrieved April 10, 2010.
22. ^ Pyramid selling scam that preys on women to be banned
23. ^ Pyramid Schemes, May 13, 1998″ Federal Trade Commission
24. ^ Edwards, Paul (1997). Franchising & licensing: two powerful ways to grow your business in any economy. Tarcher. pp. 356. ISBN 0874778980.
25. ^ Clegg, Brian (2000). The invisible customer: strategies for successive customer service down the wire. Kogan Page. pp. 112. ISBN 074943144X.
26. ^ Higgs, Philip; Smith, Jane (2007). Rethinking Our World. Juta Academic. pp. 30. ISBN 0702172553.
27. ^ Kitching, Trevor (2001). Purchasing scams and how to avoid them. Gower Publishing Company. pp. 4. ISBN 0566082810.
28. ^ Mendelsohn, Martin (2004). The guide to franchising. Cengage Learning Business Press. pp. 36. ISBN 1844801624.
29. ^ Blythe, Jim (2004). Sales & Key Account Management. Cengage Learning Business Press. pp. 278. ISBN 1844800237.
30. ^ Facts for Consumers; The Bottom Line About Multilevel Marketing Plans and Pyramid Schemes Federal Trade Commission
31. ^ Facts for Consumers; The Bottom Line About Multilevel Marketing Plans and Pyramid Schemes Federal Trade Commission
32. ^ FTC Charges Internet Mall Is a Pyramid Scam Federal Trade Commission
33. ^ Gardaà hold firearm after pyramid scheme incident Irish Examiner
34. ^ National Consumer Agency Ireland
35. ^ Colombians riot over pyramid scam. Colombia: BBC news. Nov 13, 2008. http://news.bbc.co.uk/2/hi/americas/7726069.stm.

• The Fraudsters – How Con Artists Steal Your Money Chapter 9, Pyramids of Sand (ISBN 978-1-903582-82-4) by Eamon Dillon, published September 2008 by Merlin Publishing, Ireland

[edit] External links

• An information graphic that describes a pyramid scheme
• FTC consumer complaint form
• Article by Financial Crimes Investigator, Bill E. Branscum
• Spoof article
• The Math Behind Pyramid Schemes, Chain Letters, and 2-Up Schemes – Investigates the mathematics of the geometric series involved.
• IMF feature on “The Rise and Fall of Albania’s Pyramid Schemes”
• Cockeyed.com presents: Pyramid Schemes – A description of the 8-ball model and matrix schemes which is a close cousin to pyramid schemes.
• National Consumer Agency on Pyramid Schemes – Irish consumer site describes two local pyramid schemes and offers advice to would-be participants.
• PyramidSim.com simulation, graphing and calculation of various pyramid schemes.
• National Consumer Agency Ireland
• Australian Trade Practices Amendment Act (No. 1) 2002 Australian Law Online
• Public Warning on Pyramid Schemes Central Bank of Sri Lanka

Scams and confidence tricks See also Fictional con artists and List of Ponzi schemes Terminology Notable scams and
confidence tricks Internet scams and
countermeasures Pyramid and
Ponzi schemes

From Wikipedia, the free encyclopedia

A get-rich-quick scheme is a plan to acquire high rates of return for a small investment. Most such schemes promise that participants can obtain this high rate of return with little risk.

Most get-rich-quick schemes also promise that little skill, effort, or time is required. They often assert that wealth can be obtained by working at home. Legal and quasi-legal get-rich-quick schemes are frequently advertised on infomercials and in magazines and newspapers. Illegal schemes or scams are often advertised through spam or cold calling. Some forms of advertising for these schemes market books or compact discs about getting rich quick rather than asking participants to invest directly in a concrete scheme.

It is clearly possible to get rich quickly if one is prepared to accept very high levels of risk — this is the premise of the gambling industry. However, gambling offers the near-certainty of completely losing the original stake over the long term, even if it offers regular wins along the way. Economic theory states that risk-free opportunities for profit are not stable, because they will quickly be exploited by arbitrageurs.

• 1 Illegal get-rich-quick schemes
• 2 Online get-rich-quick schemes
• 3 See also
• 4 References

[edit] Illegal get-rich-quick schemes

• When there is no pretense at selling a product, many get-rich-quick schemes qualify as pyramid schemes or matrix schemes, which are illegal in most countries.
• Ponzi schemes, which are similar to pyramid schemes and offer exorbitant returns on investment, are illegal in most countries.
• Advance fee fraud

[edit] Online get-rich-quick schemes

Get-rich-quick schemes that operate completely on the Internet typically promote “secret formulas†to affiliate marketing and affiliate advertising.[1]

The scheme will usually claim that it requires no special IT or marketing skills and will provide an unrealistic timeframe in which the consumer could make hundreds of thousands, if not millions of dollars.

Schemes of this nature usually have catchy titles to encourage potential victims into paying signing up fees which can range from several dollars to thousands of dollars. The get-rich-quick scheme will heavily imply that the consumer will be able to earn much more than this small investment when they apply the special, secret techniques revealed in their training material they will send. Such training material is typically in the form of e-books or training CDs.

These schemes rarely work since the material sent to victims is frequently just basic or intermediate marketing material that is neither secret nor a guarantee to making a lot of money online.

Get-rich-schemes of this nature habitually share the same warning indicators that include

• They will imply that anyone signing up will become rich within months to a year.
• They will tell potential victims that the route to success is by following “secret formulas†that no one else knows about.
• They will often claim they have been seen on various websites such as Google and YouTube, causing the viewer to assume said websites endorse the product.
• They will use pressuring tactics to get victims to sign up quickly, such as claiming that there is only a certain amount of copies of a CD left, or using special discount prices that are only available for a short amount of time.
• Schemes such as this will often employ the tactic of displaying testimonials from “previous users.â€
• Many websites promoting such offers will use large red and black fonts and the underline feature will be heavily present on the webpage.
• When trying to navigate away from the page users are often presented with popup windows offering further discounts, in an attempt to make the user feel special.

Another indicator is the way the schemes are advertised. Many schemes will post “success stories†on post-your-own-article websites.

Schemes like this will also be advertised through serial promoters. Serial promoters are individuals who are not directly affiliated with a given scheme, but will promote from one to the next almost everyday. In return the owner of the scheme may do the same for them, or if the get-rich-scheme is a Ponzi scheme, the serial promoters will be invited to join early in order for them to make money from new recruits.

Whilst making money online is always possible, it should be noted that affiliate marketing and advertising are jobs just like any other. Dedication, talent and hard work are all required to make good money in this area. Individuals lacking in those areas may struggle to make an income online.

An example of such products include the infamous Google scams, where the scheme will imply that viewers can make an income from home using affiliate advertising with Google, or simply posting links. These schemes have various titles and will trick the user into thinking they are endorsed or affiliated with Google Inc. through improper use of trademarks and logos.

Other popular online get-rich-quick schemes can include survey taking, whereby a user would complete surveys of varying subjects and get paid for the time. Get-rich-quick schemes take advantage of this and often promise that users can make a good income from doing this, which is not the case. Individuals who partake in survey taking can expect small profits that can supplement another full time income.

The legality of such schemes is often a matter of extreme controversy. This online get-rich-quick scheme can’t be described as illegal outright scams since the majority do send an end product to the user, but they do employ severely misleading sales tactics in order to get victims to sign up. Users should always be aware when signing up for schemes online that promise to show the route to financial freedom, especially if there is an initial investment to be made.

[edit] See also

• Forex scam
• Make money fast
• Scam
• Ripoff
• TANSTAAFL
• Land Banking
• Matthew Lesko
• Multi-level marketing
• Success University

[edit] References

1. ^ “ThatsNonsense.com Get Rich Quick – The Real Deal?”. http://www.thatsnonsense.com/index.php?location=millions. Retrieved 2009-10-13.

Scams and confidence tricks See also Fictional con artists and List of Ponzi schemes Terminology Notable scams and
confidence tricks Internet scams and
countermeasures Pyramid and
Ponzi schemes