Most people associate the word combination "pyramid schemes" with fraud. Not for nothing do they: millions of deceived investors remind us of their fraudulent nature. Because of the activity of those firms, people often confuse the "pyramid scheme" notion with investment funds, affiliate programs and the notion of "financial market" in general.
This article will explain why not every pyramid-like company is fraudulent and how to detect a fraudulent scheme among conscientious financial organisations.
Main signs of pyramid schemes:
1. Extreme profitability
Counting on people's credulity, fraudsters often promise extreme investment profitability, which exceeds greatly the profitability offered by similar companies. In fact, none of big businesses can guarantee 100% high profits.
2. Empty motivation
When brainwashing clients, the representatives of pyramid scheme companies always fob them off with false promises and speak about great income without providing any concrete information.
Also, they tend to create a suspiciously friendly relaxed ambience. They say that you should see other members of the organisation as family.
3. Use of similar names
The nature of pyramid schemes is often concealed by use of well-known financial companies’ names. A great deal of companies with similar names but different types of business (LTD, PLC, JSC and so on) may lead investors astray as well.
4. Overvalued useless products
Some pyramid schemes involved in network marketing suggest that you buy various overvalued goods at an extremely high price and resell them to other people at an even higher price. But those goods are not even branded.
5. No products at all (not to be confused with provision of services)
There may not be any goods in pyramid-like companies at all. Instead, other objects of no real value, most often securities, serve as goods. A striking example is the MMM pyramid scheme that used vouchers as securities. But in reality, those vouchers had no value.
6. No management
The representatives of a pyramid-like company refuse to name the top-managers or they simply avoid any questions. If they do voice the names, they are usually unfamiliar foreign names. Obviously, it's impossible to contact the company's top management.
7. Obscure investments
Find out all the information about the company or the product that you are compelled to invest in. This may be a dummy company and the product may simply not exist, while the representative will assure you that they are the industry leaders.
1. Investigate and check all the information on the company. The information must be provided immediately upon request .
2. Check the information in independent sources.
3. Compare risks and rewards. If rewards are much higher than risks, then think twice before joining the company.
4. Be cautious and don't get tricked
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The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.