Invasion of Pyramid and Ponzi Schemes

Courtesy: themerkle.com

Have you ever attended one of those seminars? Noticed how sweet and convincing they sound? I swear, if you go there with money I promise you'd invest in their scheme there and then. I know a lot of people will disagree with me, but hey, I didn't invent the term 'pyramid scheme' neither did I coin 'ponzi scheme'.

I remember in my first year in the University, my cousin actually convinced me to join one of those schemes, I was promised a wall clock, I think, once I joined with a certain fee, and more household appliances as I convinced more people to join and climbed up the pyramid. Well, suffice to say that I was stuck at that level with a wall clock, and that was the end of my venture into the pyramid scheme, a.k.a 'networking business'. That particular scheme soon came crumbling down.

Courtesy: vivianaandrew.com

See, in a typical pyramid scheme, the consumers or investors are promised large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. This is different from Multi-Level Marketing (MLM) which although controversial, is a form of direct marketing in which companies encourage their sales reps by offering them a percentage of the sales they make and encourage them to recruit more sales representatives; the existing sales rep is also paid a percentage of the sales which his/her new recruits make. The recruits are known as ‘downline’.  There have been some concerns that some MLMs are Pyramid schemes. The issue here is how do you know which is what?

If the focus is more on recruiting people than on the sale of any particular product to consumers, then my friend, you’re part of a pyramid scheme. Some pyramid schemes hide under the guise of MLM to operate. The money brought in by new members is used to pay off the old members. They always promise that the higher you go up the scheme, the more money you make, which is often true until the scheme comes crashing down when you don’t recruit new members anymore. When pyramid schemes fail, people lose a lot of money, especially fairly new members who haven’t made money from the scheme. Usually, the people that rake in money in a pyramid scheme are the first investors who joined the scheme from the onset.

Courtesy: aworkathomebusiness.com

The Ponzi scheme is similar, but slightly different. In this case, people are convinced by the scammer to trust his with their money which he’d ‘invest’ and pay them interest on their investment. The investors might get some payments for a few months as interest till the scammer disappears. Usually the returns promised are ridiculously higher than what you'd normally get, which I believe is what lures people into it. You make a lot of money in a short while. Do we ever stop to ask what they're really investing in? Stocks and bonds? Real estate? Forex?,  and it yields so much in such a short time? A close friend recently lost huge sum to such scheme and I remember cautioning her against such venture but because we all want to reap without sowing she went ahead and invested in the scheme, now the man is at large and her money gone. Charles Ponzi, the scammer who was so good at being bad that the scheme was named after him, raked in millions of dollars and swindled a lot of people in the 1920s. What I usually believe is this, if a deal is too good to be true, it usually isn’t real.

In recent times, such schemes have invaded Nigeria with a great force and our people have hung on to their every promise and are investing with reckless abandon. I have been called all sorts of names, from ‘lazy’, to ‘dull’, some say I’m not a hustler because I refuse to be part of their downline. There are even ones which I checked out on the internet and found out that they’ve failed in some other countries. Nigeria is a fresh ground for them to recruit people; therefore they’ve all rushed down here. I have been told of people that got cars, grants for houses, scholarships, travelled abroad, etc. from these schemes, but it’s all good and rosy until the scheme collapses.

We should be careful, but if you want to try it out, have fun!

Hugs...