Planet Antares Scam Advice | Avoiding Pyramid Scams
Despite their obvious “design flaw,” pyramid schemes remain a popular vehicle for scams, nearly 400 years after the first known pyramid scheme was unveiled. A basic pyramid scheme involves a primary participant who recruits other participants in the scheme. Each participant is promised a return based on the number of participants s/he recruits. As more participants join the pyramid, the participants at the top realize large payouts, which serve to encourage new investors to join the bottom of the pyramid. Often, the initial payouts are reinvested in the scheme.
The pyramid scheme quickly falls apart, however as many more new participants are required to sustain the promised returns to the people at the top. Eventually, the number of required participants reaches its practical limit and the pyramid falls apart, leaving most new participants with nothing, and a few original players at the top of the pyramid (usually the pyramid operator(s)) with substantial gains.
Pyramid schemes (and their close cousin, the Ponzi scheme) are illegal in the United States and many other developed countries, however the lure of quick and easy money is often enough to ensure that these investment scams continue to operate.
Here are a few tips that can help you avoid a pyramid scam.
All investment opportunities in the United States are regulated by law and must provide certain information to prospective investors. This information, called a prospectus, must be presented to potential investors prior to investment. If an investment doesn’t have a prospectus, or the salesperson doesn’t want to provide specific information about the investment, be cautious about buying in.
All investment salespersons, brokers and dealers must be registered in the state in which they are doing business. Check with your state to determine whether the person presenting the investment is registered. If not, do not invest your money.
Pyramid schemes require a lot of additional investment to continue. If an investment sales person asks you to refer other potential prospects, uses pressure tactics to encourage you to refer other investors, stresses the time-limited nature of the opportunity, or offers you a better return on your investment based on the number of additional investors you refer, consider these to be strong “red-flag indicators” that something is wrong. Examine this investment opportunity very carefully before putting any money in.
Likewise, beware of investment opportunities that come to you via friends who may offer you a deal “too good to pass up.” Regardless of how an investment offer comes to you, be prepared to do your own research and make your own decisions about whether an investment is right for you.
The return on your investment should be commensurate with the amount of money you invest. Reaping an exceptionally large return on a relatively small investment is not unheard of, but it is highly unusual. It’s also unusual to experience only gains in an investment. Most investments experience a mixture of gains and losses over the investment period. Avoid investments that promise only gains, show only a history of gains, or report extraordinary gains despite operating in a soft economy.
The key identifiers for a pyramid scheme are recruitment of new investors, time-limited opportunities to invest, and exceptional returns over a short period of time or during times when legitimate investments are either losing or producing minimal returns.
