16-09-2010 http://www.scamwatch.gov.

au/content/i…

Pyramid schemes
What is a pyramid sc heme?
Warning signs
Protec t yourself from pyramid sc hemes
Do your homework
Dec ide
Report them

What is a pyramid scheme?

Pyramid sc hemes are illegal and very risky ‘get-ric h- quic k’ schemes that can c ost a lot of people a
lot of money.

Promoters at the top of the pyramid make their money by having people join the sc heme. Then
they poc ket the fees and other payments made by those who join under them.

In a typic al pyramid scheme, a member pays to join. The only way for the member to ever recover
any money is to c onvinc e other people to join up and to part with their money as well.

In contrast, people in legitimate multi-level marketing earn money by selling genuine produc ts to
consumers, not from the rec ruiting proc ess. Be aware though, some pyramid sc heme promoters
disguise their true purpose by introduc ing produc ts that are overpric ed, of poor quality, diffic ult to
sell or of little value. Making money out of rec ruitment is still their main aim.

People often hear about pyramid schemes from friends, family or neighbours. Normally, pyramid
sc hemes rec ruit members at seminars, home meetings, over the phone or even by mail. Now email,
usually as spam, is increasingly used to recruit members as well.

For the sc heme to work so that everyone can make a profit there would have to be an endless
supply of new members. In reality, the number of people willing to join the sc heme (and therefore,
the amount of money c oming into the sc heme) dries up very quic kly. When the pyramid c ollapses
(and they all do) relationships, friendships and even marriages c an be destroyed over money lost
in the sc am.

In Australia, it is against the law not only to promote a pyramid scheme, but even to partic ipate in
one.

Top
Warning signs

You are offered a chanc e to join a group, scheme, program or team where you need to
rec ruit new members to make money.
The sc heme involves offers of goods or services of little or doubtful value that serve only to
promote the sc heme (suc h as information sheets).
There is a big up-front c ost to pay for large quantities of goods.
There are no goods or servic es being offered for sale by the scheme.
The promoter makes c laims like ‘this is not a pyramid scheme’ or ‘this is totally legal’.

Top
Protect yourself from pyramid schemes

If it looks too good to be true—it probably is.

scamwatch.gov.au/…/PyramidSchemes?… 1/3
16-09-2010 http://www.scamwatch.gov.au/content/i…
Use your common sense: the offer may be a sc am.
Do not let anyone pressure you into making dec isions about money or investments: always
get independent financial advic e.
You can c ontact your loc al office of fair trading, ASIC or the ACCC for assistanc e.
Beware of produc ts or sc hemes that c laim to guarantee inc ome or winnings.
Remember that family members and friends may try to involve you in a sc am without
realising that it is a sc am: you should seek independent advic e (from a lawyer or financ ial
adviser)

As well as following these spec ific tips, find out how to protec t yourself from all sorts of other
sc ams.

Top
Do your homework
Pyramid sc hemes often look like legitimate multi- level marketing sc hemes. To tell the differenc e
between them, ask yourself these two questions:

Are the rewards you have been promised based on product sales (by either yourself or
others you introduc e to the sc heme)?
Are the products genuine produc ts of real value, at a reasonable price and the type of thing
that consumers will want to buy time and time again?
If you are unsure or answered no to either of these questions, there is a real c hanc e that
the sc heme is a pyramid scheme.

If you have doubts about a partic ular marketing sc heme, the ACCC, ASIC or your state or territory
fair trading agency may be able to help. As with any other investment dec ision, you should seek
independent advic e (for example, from a lawyer or ac countant) before you make a dec ision.

Top
Decide
If you believe that an offer is a pyramid scheme, do not take part—it is very likely that you will
lose your money and you c ould be breaking the law. If the offer was made to you by a friend or
family member, you should also warn them that they might be involved in a risky and illegal scam.

If you believe that the offer could be a legitimate multi-level marketing scheme, make sure you
get independent advice before signing up or investing any money.

Top
Report them
If you think you might be involved in a pyramid sc heme, stop participating in the scheme
immediately and c ontact ASIC, the ACCC or your state or territory fair trading agency. You c an do
this through the report a sc am page on SCAMwatc h. You should also warn other people you think
may have been approac hed about joining the sc heme.

Top

Have you been sc ammed?

What to do if you've been scammed; Sc ams & the law; Report a scam.

Similar scams:

Chain letters
Chain letter sc ams falsely promise financ ial or other benefits for a relatively small cost.

Investment seminars & real estate scams

High-pressure sales in high-risk investment strategies. Scammers profit through attendanc e fees

scamwatch.gov.au/…/PyramidSchemes?… 2/3
16-09-2010 http://www.scamwatch.gov.au/content/i…
and by selling property and investments at inflated pric es.

Business opportunity scams

There are a range of scams marketed as business opportunities. They promise suc cess but usually
only the promoter makes any money.

Guaranteed employment / inc ome scams

Scammers ‘guarantee’ you a job or c ertain level of inc ome, tric king you into paying an up-front fee
for a ‘business plan’ or materials.

Work from home scams

Employment opportunities that promise huge inc omes with little work – usually by asking you to
transfer money for someone else or rec ruit new victims.

scamwatch.gov.au/…/PyramidSchemes?… 3/3