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What Is A Pyramid Scheme? Tips To Avoid Falling Victim To This Fraud! What Is a Pyramid Scheme Scam?

Updated on May 1, 2012

What Is A Pyramid Scheme?

Pyramid schemes, are also known as franchise fraud, It is also known as chain referral schemes.

These are marketing and investment frauds in which a person is enticed to purchase a distributorship or franchise for the purpose to advertise a certain product.

There is usually never a profit earned on the product itself, the earnings are derived from selling others the idea of buying a distributorship themselves.

The priority of these schemes is in the selling of franchises to others, the product itself is of little importance. This will eventually end up with a business plan that will run out of potential investors and the entire pyramid scheme collapses.

The intent of every Pyramid scheme is that the perpetrators will induce new victims to buy a franchise or distributorship by telling them that signing up only two new members will allow them to recoup their original investment. Usually the person who has fallen victim to this scheme will try and sell their family and friends the idea of this fraud.

What the promoters do not tell to hopeful participants is that it is not possible for each person who invests in the scheme to recruit new members. Especially since many victims simply drop out of the scheme, while others recoup their money and then they drop out of the Pyramid Fraud.

How To Not Fall Victim To A Pyramid Scheme!

Be very cautious of any proposed opportunities that ask you to invest your money in a franchise.

Also be cautious of investments that ask you to pursue other investors for the purpose of acquiring a profit or to recoup your investment.

Take the time to research the history and legitimacy of any franchise or other investment prior to making the decision to invest.

Ask yourself if the actual product is something that you would consider buying, instead of the franchise or distributorship.


The materials available on this hub are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. All materiel are copyrighted properties of the author and may not be used without permission of the author.

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      pcoach 7 years ago

      Good info. They are everywhere!