home Features Want To Be Your Own Boss?- An Exploration of Pyramid Schemes

Want To Be Your Own Boss?- An Exploration of Pyramid Schemes

Eoghan O’Donnell, Deputy Features Editor

“I came from the poorest neighbourhood. I dropped out of school at 17 and felt I had little to no hope. Now? I’m living like a king. Last year was the most profitable of my life and this year I am aiming to double it. Inbox me for more information on how you can turn your life around. I can promise up to $10,000 in return for your little investment. So, how does this life of luxury sound? Message me and don’t miss out on your once in a lifetime opportunity!” 

Sound familiar? For most it is safe to say yes. It is hard not to come by a message of this sort, if not from a distant secondary school classmate, then from a random stranger private-messaging you on Instagram. Business trading is difficult, and it can be hard foraging for success in such a competitive industry. If an offer like this is presented, why not take it?

Welcome to the life of, what is potentially, a pyramid-schemer.

Pyramid Schemes: What are they? 

Essentially pyramid schemes work as a way to convince people that their small investment will result in them earning greater returns, guaranteeing they recruit more people to invest. Now, you may be wondering what exactly is involved with these investments. What is presented does not appear to be any product or service: instead it seems to be more of an investment in the structure of this scheme.

Pyramid schemes are named such for their operational structures: what starts with a limited managerial peak expands exponentially on lower levels, with each level of new promotional recruiters swelling to involve new members. People on top – those that start such a scheme – are the main people who profit.

For example: two people are recruited into a pyramid scheme by their mutual friend. Asked to invest €200 each, they are promised to make back three times the amount, but only if they each recruit five more members who also pay this €200 “investment”, thus creating a structure which resembles a pyramid. With this method, the base can continually keep expanding. These members, now recruited may be far down the base of the pyramid itself: when the business eventually collapses or fails their investment will likely be lost and not be returned to them.

Perhaps it is trite to state this proverb, for it is one commonly drilled into people from a young age: “If it seems too good to be true, it probably is.” Funds invested from the bottom of the ladder work their way to the top, with a percentage promised to every recruiter along the way. More often than not, those that invest further down the pyramid find that the return is less than expected. This often happens as a result of people failing to manage to recruit new members: this especially happens when the sea of potential members has been overfished – something which commonly happens in areas of a smaller population.

One of the many indicators of a system being a pyramid scheme is there being no products or services actually being sold. Entirely reliant on the recruitment of new members to recruit even more members, pyramid schemes are destined to collapse in on themselves when there is nobody left to recruit.

A famous example of a pyramid scheme in Ireland is that of Irish Liberty/Speedball. During the mid-2000s Ireland was experiencing the peak of one of its largest economic booms to date, something which transformed the country from one of Europe’s poorest into one of its wealthiest. Irish Liberty/Speedball was a scam where Irish recruits were asked to invest €10,000, money which was paid directly to a so-called headquarters in Germany. This “service” relied heavily on the recruitment of new members, who were then promised €80,000 when the recruit would one day eventually go to Germany. The head of this pyramid scam is estimated to have acquired over twenty-eight million euro through this method. After the cunning practice of this scam came to light, the Irish government reformed and tightened its laws regarding operations of this kind.

Instagram Flowers

“Dude it’s a flower, not a pyramid – you just need to get two people, what’s wrong?” is a common reaction as of late to the trendy Instagram flowers. These flowers have been overwhelming many people’s feeds recently and much controversy has been raised over them. The idea, again, works identical to a pyramid scheme. 

Many users who fell prey, or were preying on the more innocent, convinced people to invest €150 in exchange for larger returns in the future. This particular scheme was targeted at younger people, and especially students – which is the reason Instagram was the ideal platform for it. Gardaí and The Consumer and Competition Protection Commission warned people to avoid these ‘promises’ for money and to report them directly.

The same is to be said for the ‘Blessing Loom’ which at one stage was very popular in the United Kingdom. The outer-nets of the loom were for those who invested early. They were promised to move deeper into the web of the loom with the more people they recruited, and were then guaranteed to earn more the more people they convinced to invest. Though these ‘projects’ for earning returns on your investment seem promising, especially with such colourful maps, they are all pyramid schemes looked at from a birds-eye view. Have a look at the images attached with this article: thin centre, larger base – the ideal scam.

Typical of all pyramid schemes, the amount of people available to recruit runs out. This leads to the collapse which is always inevitable: people that invested early may end up with money, but those newly recruited most often lose out. When the pyramid scheme does collapse, it is not long until it is reported by somebody who has lost money unjustly. Investigations which then occur lead to criminal punishments. If you’ve been keeping up with the drama surrounding these recent flower pyramid schemes, you may have seen blurry Snapchat videos of Gardaí knocking on the doors of the alleged leaders of these Instagram-flower pyramid schemes.

Avoiding Pyramid Schemes

Pyramid schemes are illegal in most countries, including Ireland, and operating and participating in one is unlawful. The Competition and Consumer Protection Commission has clarified to the public that “promoting or participating in a pyramid scheme is illegal under Irish law and if convicted, you could face a fine of up to €150,000 or up to five years in prison, or both.”

One of the main indicators of a pyramid scheme is an organisation’s inherent focus on you involving more people instead of selling a product, although the scheme itself may be associated with a product. People or organisations that also put pressure on you to decide to join in their rankings are also red flags: many legitimate businesses will not promise you thousands to join their business “only if you join within the next 24 hours.” 

As well as this, a business shouldn’t require members to pay to sell a product; these down-payments work as a way to ensure you remain roped into their organisation, so that you actually are convinced to keep grafting to earn back what you originally invested. And, if there is the possibility of you earning back what you invested, why not try to earn even more? Thus, the cycle of a vicious pyramid scheme is fuelled.

Multi-Level Marketing

Business structures are constantly evolving, and a certain structure which has become more prominent over recent years is that of Multi-Level Marketing (MLM). MLM is a business structure which mainly focuses on people selling products to the greater public. Like a pyramid scheme, MLMs also focus on expanding the numbers of distributors to enormously increase sales: one main difference is that MLMs actually sell products whereas pyramid schemes do not. 

The entire purpose of MLMs is to move products. The theory behind MLM is that the larger the network of distributors, the more product the business will be able to sell. Thus, MLMs are legitimate. These may seem similar at a glance to pyramid schemes but the driving forces are different: one focuses on the money invested by new recruits, the other on the potential of new recruits to sell products. As such, each recruit of an MLM functions as a mini-shop: you may have been invited to a product-selling party? Guaranteed a free glass of champagne too? But be careful of pyramid schemes hiding under the guise of an MLM, they are the real threat.

Will you really be your own boss?

In short: Solely focusing on investments made into an organisation by recruiting new members is indicative of a pyramid scheme. On top of this, being offered commission on your recruitment of new members is also a red flag of an “opportunity” being a pyramid scheme. 

So, before you reply to that Instagram direct message with your debit card at the ready, take a moment to consider the drawbacks all these positives may be hiding. Ask yourself, is this really legal? Is it too good to be true? Will this guy from secondary school inadvertently send me to prison sometime over the next few months?