Do not get fooled by aggressive advertising and check how the company makes money. If depositors' money constitutes a majority of the income, it is better not to risk it.
What is a pyramid scheme?
A pyramid scheme is an organization in which some participants benefit from the contributions of others. Those who are closer to its top, to the organizers, can really increase their fortune, but only at the expense of deceived investors from the step below.
Successful members of such organizations literally rob others. It just doesn't happen in a dark alley. Such pyramids with the simplest scheme are now rare. Multi-tier systems replaced them, the organization lasts longer, and its creators earn more.
Read also: A Healthy Relationship with Money: What it is and How to Achieve it
How the pyramid scheme works
Consider the most common version of the pyramid, which serves merely as a cover, having been completely cleared of any husks.
Under some pretext, clients with high profitability are promised big profits if they invest their money in this venture. And at first, they really benefit - from the contributions of other participants. In this case, the organization can conduct investment activities for cover. But the profit from it is a penny. The main income is cash injections from new members.
In the event that the pyramid's membership grows, the income of previous investors grows. This motivates those to invite new members and confidently say that the work is right and leads to enrichment. All this happens exactly until the moment when expenses start to exceed income. And this is possible since the growth of clients does not occur at the same pace. As a result, the depositors of the last stage lose all their money. And usually, it is already a lot of people who were chasing easy profits and lost everything.
In the worst case, remuneration for old members is paid irregularly and accumulates on some internal accounts. In this case, the pioneers of the fraudulent enterprise will also lose money. But not the organizers, of course.
Why people invest in pyramid schemes
Because they want to get rich quickly and easily, at the same time, little is known not only about financial instruments but even about personal accounting.
Besides, pyramid schemes are not that simple. Such businesses do not use a pyramid as their logo and do not reflect the essence in the name. On the contrary, they are skillfully disguised. Common screens include investment companies, network marketing, cooperatives, and so on. It's easy to fall for this bait if you don't really understand the issue. The state is still unable to effectively protect citizens from financial pyramids.
Low financial literacy and a thirst for easy money is a combination that literally paves the way for scammers.
How to recognize a financial pyramid
To begin with, use the criteria that the Central Bank has established to identify financial pyramids. They do not guarantee that the organization is a scam, but they reason to be wary.
1. The promise of very high returns
When investing, the rule applies: the higher the estimated percentage of earnings, the higher the risk. So your funds are in danger one way or another, even if it is not a pyramid scheme. There is a reason to think three times before investing.
2. Guaranteed profitability
This is not an alarm bell, but an alarm bell. It is forbidden to guarantee profitability, so the organization is already playing unfairly.
3. Lack of a license to raise funds
The company must have a permit from the Federal Commission for the Securities Market (existed until March 2004), the Federal Service for Financial Markets (March 2004 - August 2013), or the Central Bank (since September 2013) to carry out activities to raise funds. If there is no paper, this is a reason to worry.
4. A lot of advertising
An abundance of videos and banners not only annoys but also signal danger.
5. Lack of any information about the financial position of the organization
Transparency is a good sign. Its absence is the opposite.
6. Payments to one participant from the contributions of other participants
There is no need to talk about income if money is distributed within the company and does not increase.
7. No own fixed assets
If a company does not have expensive assets, depositors will definitely be left with nothing if it goes bankrupt.
8. There is no precise definition of the organization's activities
Here again, there is a lack of transparency. If you can't figure out what the company is doing, it probably isn't a matter of your mental capacity.
You can also check:
- Who runs the company. How past projects ended.
- Does the organization have a charter?
- Where are the deposits?
- Where investor money goes.
Why you should never invest in a pyramid scheme
A scam usually results in a huge number of depositors losing all their money. We have dealt with this. But surely some people have a cunning plan in their heads, according to which they intend to be closer to the top of the pyramid and make money on less efficient fellow citizens. That's something you don't need to do either.
What to do if you have already got involved in a pyramid scheme
There is practically no good news here. If you saw the light before the company was recognized as a financial pyramid and it ceased to exist, withdraw your money from it as quickly as possible. If you are late or the company refuses to return the money based on the clauses of the agreement, you most likely will not see the savings anymore. But it's worth trying.
Also read: 6 Tips for Coping with Temporary Financial Difficulties
- Submit a written claim to the company asking for a refund. If your requirements are not met, contact the prosecutor's office, write to the Central Bank.
- Find other victims of the pyramid and file a class action suit. Gather proof of money transfer in advance, prepare documents.
The Fund for the Protection of the Rights of Investors and Shareholders is ready to pay compensation to some companies' investors. True, we are talking only about organizations from the register. And the amount of compensation is small - no more than 25 thousand rubles. Veterans and invalids of the Second World War can claim up to 250 thousand.
Adapted and translated by The Cop Cart Staff
Sources: Life hacker
