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What Companies Are Pyramid Schemes?

Knowing what companies are pyramid schemes can help one avoid the fatal error of committing scarce funds into such doomed enterprises. There is enough awareness about Pyramid Schemes, and plenty of warnings about these kinds of enterprises.

The problem is that Pyramid Schemes are becoming more cleverly disguised, making them a lot more difficult to spot.

Despite the clever theatrics, the principle remains constant; pyramid schemes are fundamentally unsustainable; they are designed to crash, leaving investors in financial ruin, while the pioneers run away with all the money.

What Companies Are Pyramid Schemes?

Pyramid Schemes are ventures that require participants to enlist more participants (usually a specified number) so as to boost the participant’s rank. The participants who have recently been enlisted will also be required themselves to bring in a specific number of people each, thus boosting their individual ranks, and the rank of the person who enlisted them.

The problem is that there are only 6 billion people in the world, and less than half of them will be interested in any given pyramid scheme. When new members become scare, the whole scheme crumbles, leaving the vast majority of participants empty handed.

There are so many pyramid schemes out there right now, and some may not look like pyramid schemes at all.

So…

How Do You Tell If A Company Is A Pyramid Scheme?

The following are telltale signs of a pyramid scheme. Sometimes, individual signs by themselves may not be enough; but when a company shows two or more of the traits listed below, it usually increases the chances of the enterprise being a cleverly disguised pyramid scheme, which is sure to go burst.

Required To Pay For Membership

When a company requires you to pay for membership, after soliciting that you join, it is usually a red flag. Clubs and associations may require a membership fee, but why does a company need members to pay a membership or registration fee?

Required To Recruit Members

Having paid for the membership or registration, if a company requires that you recruit new members (usually a specific number) then it already is a pyramid scheme. Usually, when a member meets this requirement, he then moves one step up the pyramid, and then when his down lines get their own members they too attain that rank, pushing him up one step above, and so on.

Multilevel marketing companies are therefore, by this definition, pyramid schemes. That raises a question because most multilevel marketing companies also sell products. Is a company a pyramid scheme if it sells products? The answer is given below.

More Attention To Recruitment than Sales

These days companies can require a registration fee, require members to bring in more members, and still sell products. In such a case the determining factor will be how much attention the company gives to the recruitment of new members.

If the company has a required number of people who must be registered by each member, then it is a pyramid scheme. If the company offers more incentives for bringing in new members than it offers for making sales, then it goes to show where the operating income comes from: new members’ registration fees.

It may take time, but companies like these will eventually run out of new members, and collapse in the same way that other pyramid schemes before them have done.

there are not enough people in the world for the minions to make money

Financial Independence

Any company that preaches Financial Empowerment, or Financial Independence should be approached with caution. Multi-Level Marketing companies may sell products, but in order to make any significant earnings participants need to be at the higher levels of the pyramid structure.

Only those at the top of the Pyramid; that is those who have successfully amassed a significant following or down line can make any significant money from businesses like these.

About 80% of members (that is those who joined late) will lose their money because, they will not be able to recruit enough people into the scheme. Remember that there are only 6 billion people on earth, and not all of them will be interested in the business.

Nevertheless, Multi Level Marketing schemes regularly host seminars and conferences where they hide the losers, and only talk about the 20% or less who make money.

They sell a dream; an unsustainable lifestyle.

Promoting An Unsustainable “Lifestyle”

These days pyramid schemes (especially of the MLM style) promote themselves as lifestyle companies. To coerce members to work harder in getting new members, and also to entice prospective members, many MLM style pyramid schemes reward top performers with outlandish holidays at expensive venues, sometimes overseas.

The common catchphrases are “lifestyle” and “health is wealth.”

This lifestyle is utterly unsustainable. For one thing, it is a drain on the resources of the company. Any serious company, built on a solid foundation of revenue and expenditure cannot and should spend money in that way.

Furthermore, the number of people qualifying for such expensive holidays will increase exponentially; also exponentially increasing the amount of money needed to take such a number of people on the said vacations. For example if 50 people were taken on a boat cruise to the Bahamas this year, 250 people will likely qualify for the same treat the next year, and 1250 the year after that.

The scheme would therefore be unsustainable; probably contributing to the early demise of the company.

Examples Of Pyramid Schemes

Sometimes, pyramid schemes can be quite successful; they can stay around for several years before their eventual collapse. For legal purposes it is not possible to call out existing companies; they would argue that they are not pyramid schemes.

Therefore, only companies that have crashed will be mentioned, but readers can draw comparisons between these companies and existing ones which may be popular today.

WakeUpNow

WakeUpNow was established in 2009, and died in 2015. It was a company that sold health and financial management products. Some of its products included: Thunder Energy Drinks, Awaken (drinks), and WUN fit.

It also sold other products such as a travel discount program Vacation Club, tax software Taxbot, and WUN MD.

Despite these apparently good products, the problem was with the structure of the company. It was a multi-level-marketing company, and made most of its money by recruiting more people. Furthermore, most of the products sold by the company were available on the internet for lesser prices.

Xango

Xango was a company that was established in 2002, but which became a mess in 2010, until it was acquired in 2017. Some of the company’s products includes Xango Juice; a popular consisting primarily of Mangosteen, and other fruits. The product became very popular due to its health benefits; and sold for quite a high price.

The company also became quite huge; by October 2008, it operated in 24 countries and had more than 1 million independent distributors.

The company’s success was short-lived; as with most pyramid schemes it started having troubles when it could not sustain the aggressive growth. It stated that 70 percent of its distributors “simply use their status to buy the juice at the discounted membership price.”

Xango’s troubles were exacerbated by financial impropriety by key officers, which when blown open, affected members’ morale. The company was a defendant in many court cases before its acquisition.

Aman Futures Group

Aman Futures Group was a pyramid investing scheme company that operated in Malaysia and Philippines around 2012. The company was promising returns of 50 to 80% within 17 to 20 days. It reportedly scammed 100,000 Filipino families, and had 15,000 complaints made against it.

Interestingly, members of the Philippine National Police were among those defrauded. Despite a police investigation into the scam, members of the public ransacked offices of the company.

The CEO fled the country, and has not been seen since.

Holiday Magic

Holiday Magic was a multi-level-marketing company in the United States of America. The company was established in 1967 in the United States. It initially started as a company distributing cosmetics and home care products.

The later, in an attempt to boost sales, it started encouraging distributors to recruit other distributors, in a multi-level marketing structure, rewarding distributors who could bring in more people.

The company was identified as a pyramid scheme when 31,000 members filed a class action. It was dissolved with the founder’s death in 1973.

Further Reading:

Closing

The list of pyramid schemes is endless; perhaps because despite the efforts of the few to learn what companies are pyramid schemes, there are still many people who do not want to know.

Furthermore, there are pyramid scheme companies, especially of the multi level marketing type, which have survived many years, leading some to believe that they must be legitimate companies simply because of their longevity.

It appears that these companies have simply learned a new trick; they have raised the prices of their goods, and by encouraging their members to consume these products, they make profits. The fundamentals have not changed; most members will not make money-especially those who joined in late.

Despite the fact that “financial freedom” is preached at the seminars and conferences, it is only ever going to be achieved by those at (or near) the top of the pyramid. Everyone else loses money.

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