The Exposé Substitute; Pyramid Schemes Broken Down
So, this was supposed to be an exposé piece but, due to some legal issues that could've arisen and the possibility of me having to pay a fine or facing jail time, I decided to write this in a form of a #SFTSBrokenDown piece instead, with a little shade thrown here and there for you to spot the current, ongoing fraud! So, let's get to it!
For the past months, maybe even a year, a pyramid scheme has been going around among the youth of Egypt disguised as a legal MLM business. Such a business, or a multi-level marketing business, is one that relies on distributors to sell its products, with recruiting new distributors being a secondary goal for extra cash. However, a pyramid scheme focuses on distributors profiting off of recruiting new distributors, making it their main goal.
FTC’s Koscot decision observed that such enterprises are “characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of the product to ultimate users.” In re Koscot Interplanetary, Inc., 86 F.T.C. 1106, 1181 (1975).
Legit MLM businesses do not require any prepayments and they tend to compensate their distributors for the products that do not get sold, whereas pyramid schemes require prepayments, masked as membership fees and maybe even training session fees, and have difficult-to-sell products, that can be virtual such as online discounts or coupons, and sometimes even no product at all! A famous example of this is a business called Vemma back in 2004 which sold liquid nutrition products in the USA, concealing its pay-and-recruit structure by its tangible product.
How they operate.
Typically, a pyramid scheme starts with one person, or the apex of the pyramid, who starts off by selling a product or a service to a couple more people for a relatively fancy price, telling them to recruit more people by selling them the same product or service to take a specified percentage of the same fancy price and giving the rest back to the apex. This goes on, with every new member thinking that they'll recoup the money they've presumably "invested" back by recruiting more people until they reach a point where no more people are out there to buy the product since it is difficult to sell. At this point, the pyramid starts to crumble, leaving the ones at the top with unfathomable profits and fortunes, and those at the bottom to deal with all the losses. Studies have shown that up to 99.88% of the participants of pyramid schemes lose their money, and 88% will be of the bottom level of it.
How they lure people.
Since the early recruits are those who make the most money throughout the process, they are encouraged to speak highly of their experience and cashback in order to frame the scam as a once-in-a-lifetime opportunity. They will usually invite you to meetings, where physical in upscale areas to fuel their fancy image, or virtual in conference call apps such as Zoom and whatnot. These members normally recruit more members from their tightly-knit communities, such as teens and young adults recruiting people from their high schools or universities.
How to spot a pyramid scheme.
There are plenty of ways to recognise a pyramid scheme. They usually pressure you into joining, saying that the earlier you join the better (which's lowkey true) and categorising people into A, B and C groups, for example, saying that the ones who join right away are the best and thus are the A group, and so on. They also promise a suspiciously huge amount of income that would be life-altering. Besides all of that, let's not forget the fact that they basically require members to pay for a membership, and encourage them to also pay for training sessions, marketing & sales aids and lavish events to sell their products, which is weird as heck! They frequently claim to be a legitimate business with a long history in the industry -which can sometimes be unmasked with a quick Google search and Wikipedia reads seasoned with some background check of the sometimes untraceable, said-to-be-famous CEO :)- with promises of small royalty payments after you stick around for a while to delude you into thinking that "success is just around the corner." Usually, they have a complex commission structure or "market-plan" that's difficult to understand.
The process.
Frequently, the person on top seems hella charismatic and informed, deceiving everyone by feeding them useless information to talk off the ears of potential recruits when they start to ask enlighting questions that would unmask the fraud. They use the sentiment of " if I could achieve all of this with said 'market-plan,' so can you!" to appease people, asking them questions about how they would go around getting people to join up to what they would do with the money. They explain the process in its best-case-scenario, shedding light on minor issues that might face you as though these were to be the only issues (aka not mentioning the issue of this being a fraud that can get you bankrupt! :)) They admit to the fact that this might seem suspicious, but retort it by mentioning useless, unrelated information then convince you that not taking a chance on this would make you a coward that'll never move forward in life. After that, they would send your recruiter back to you to ask you about any thoughts or questions you might still have, while simultaneously trying to pressure you into paying the membership fees on the spot, whether partially or fully. Normally, they convince you that the whole operation depends on how hard you work, the harder you work the more you'll make, while simultaneously saying that it is 'easy money.'
The aftermath.
Due to the narrative that the harder you work the more you'll make, people who fall victim to the fraud and lose their money often feel like failures, thinking it's their mistake for not working hard enough rather than it being a scam. As for those who realise that it was a scam, they tend to feel embarrassed thinking that they must've been naïve, which they weren't! A pyramid scheme is a scam based on conning people out of their money, these are people who know which strings to pull and buttons to push to get you on-board by lowkey brainwashing you, so it's never your mistake, in fact, you're a victim! However, if you can tell that it is a fraud and continue with it, that's when you turn into a conperson too. Knowing that you are profiting off of other people's losses and turning a blind eye is never right, especially since a pyramid scheme would collapse when people start quitting. Lastly, if you realise that you've fallen victim to a pyramid scheme, and plan on quitting, read these words of advice carefully:
“If you have accidentally signed up for one, tell your contact you have changed your mind and ask for a full cash refund; you might also want to alert your bank to be on the lookout for any automatic payments you have inadvertently signed up for as part of the scam.” -Tidy Repo
and don't forget to alarm the authorities!
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