Pyramid schemers had better watch out. According to The Wall Street Journal, the Securities and Exchange Commission (SEC) is on the lookout for web-based pyramid schemes that may be exploiting the booming direct-sales industry.
Investigations are actively under way and at least one company has already been shut down by the SEC as a result of allegations it was nothing more than a “fraudulent $129 million pyramid scheme.”
Direct sales can be an extremely profitable business model. With more than 16.8 million Americans being employed in the direct sales industry, it is no real surprise that web-savvy con artists are interested in tapping into the industry’s success.
The problem is, these individuals are looking for an easy way to make money without having to sell a lot of product or offer a service people can use. This is what the pyramid scheme is all about.
The Basics About Pyramid Schemes
A basic idea behind the pyramid scheme is that the more people you recruit to “work” under you, the more money you will make. It is a multi-level marketing program where success is based on the number of people you can recruit, the number of people they can bring in under them, and so on. The people at the top of the pyramid stand to make the most money, as the people lower down are simply paying off the people who invested above them. Should recruiting action slow down or come to a halt, the money source will quickly dry up and the scheme will fall apart.
Joseph Mariano, of the Direct Selling Association, says pyramid schemers have evolved over the years and are now extremely adept at making their scheme appear as if it is a legitimate business. If you are involved in direct sales and more emphasis is placed on recruiting family and friends to join you in your direct-sales activities, or the list prices on items you are supposed to sell seem overly inflated, you may be involved in a pyramid scheme.
Internet Schemers: Putting a New Twist on a Very Old Type of Fraud
The SEC’s enforcement chief has stated that, “Fraudsters are leveraging social media to put a new spin on an old type of fraud.”
Platforms such as Twitter, Facebook, Instagram and others are prime places for these people to market their schemes, solicit recruits and entice others to join in. Others who come in on lower levels of these pyramid schemes may also consider social media as a way to boost income.
Unfortunately, The New York Times reports many such marketing offers are simply too good to be true. Creating fake friends (bots) on social media, and offering their services, has become its own pyramid scheme. Twitter reported to the SEC that approximately 23 million of its accounts are bots (fake accounts) and Facebook states it finds between 67 million and 137 million fake accounts each year.
Fake friend creators charge people who are interested in increasing the number of followers they have or in having their products and services promoted, yet deliver no discernible results. Companies and individuals who pay these types of schemers are often left with nothing more than false, inflated numbers.
The Wall Street Journal: SEC on Lookout for Web-Based Pyramid Schemes
Securities and Exchange Commission: Pyramid Schemes
The New York Times: Social Media Bots Offer Phony Friends and Real Profit