|
Pyramid
Schemes, Ponzi Schemes & Chain letters
Chain Letters:
Messages which tell you how, for a relatively small investment,
you can make huge amounts of money. There are countless
variations, but they all are based on the same fraudulent
concept.
With a typical “chain-letter”
scheme, the process goes something like this. You receive a copy
of a letter or an email message, making fabulous claims about
how much money you can “earn” by participating in it.
You send some amount of money to some number of people who have
joined this scheme ahead of you. Typically, you may be asked to
send 5 or 10 dollars each to five people.
You alter the list of previous participants, removing the one at
the top of the list, moving all the other names up one position,
and adding your own name to the bottom of the list.
You send out as many copies of this altered letter as you can,
to as many people as you can reach.
As new people join the scheme, in exponentially-growing numbers,
each one will send you whatever the requested amount was.
Because the number of new participants is growing at a
fantastic, exponential rate, you should collect this payment
from a ridiculously large number of people.
There are many variations on this basic scheme. In almost all
Chain letter deals people send you the money directly and remove
the top name off the list.
There are various ploys used to create an illusion of
legality. Some involve a set of reports.
5 to 10 different reports depending on the number of
people on the list you send 5 or 10 dollar bills to. In that way
you will have all the reports to send to the people who will be
sending you money as you move up the list you need all 5 or 10
of them to send out.
Like all sales programs they require advertising and promoting
and most who buy the reports just don’t sell them to others
and there goes all the viral growth form your scheme. These
always fall apart. You end up with 10 reports and no one to send
them to.
Chain letters are against the Postal Regulations in the US and
Canada. The U.S. Postal Service warns, on one of their own pages
on the subject, “Do not be fooled if the chain letter is used
to sell inexpensive reports about credit, mail order sales,
mailing lists, or other topics. The primary purpose is to take
your money, not to sell information.
Gifting Club Schemes
once called ‘Airplanes’:
Most use language which describes the money exchanged as
a “gift” gifting clubs are just another term for a pyramid
scheme. The money you pay to join a “Gifting Club” is
called a “gift”, and the claim is often made that any money
you receive from such a scheme is not taxable, because the IRS
does not tax gifts up to $10,000.
This is a dangerous falsehood, because the IRS has always
considered a gift, by definition, to be something given with no
expectation of receiving anything in return. Although you can
give someone a gift with out tax up to a certain amount each
year according to the tax code joining a deal to convince others
to give money to get money in return is not a gift. Intent is
where people slip up. The question is, did you join the program
to give money away or to make money? Intent is one of the
elements of a crime.
While the majority of gifting club participants really do get
nothing in return, their “gifts” are certainly not given
without the expectation of considerable return, so these
payments cannot be considered gifts for income tax purposes.
Most gifting program participants who are prosecuted find
themselves in state courts facing criminal charges for fraud.
A deliberate effort is made, in many cases, by promoters of
illegal schemes to confuse prospective victims with regard to
the distinction between a legitimate networking or multi-level
marketing (MLM) program, and an illegitimate pyramid scheme. But
there is a vital distinction.
The important distinction is this:
With a legitimate network marketing or MLM program, you have a
real product. That can be a publication, a service or a bottle
of vitamins, any legitimate product. Profit comes from the sale
of this product to people who will use this product according to
its value and through a commission plan that can allow you to
earn a profit from the sale to others by those you enroll.
MLM is a style of compensation plan that pays on multiple levels
under those you enroll. Networking is a form of marketing to
many other people. Both
differ from traditional sales or affiliate programs in their
style
MLM encourages you to build a downline, so that you can make
some profit from product or subscriptions purchased by those you
enroll and the people they enroll for several levels in the
program.
You must be paid from product orders not for recruiting. A
legitimate program can not require you to recruit even a single
person below you in the downline for you to have a minimum
profit. A real good program will have a way to profit minimally
by just being enrolled and you can always profit by selling the
product itself, even to people who have no interest in joining
the MLM. Of course you too can just be a customer and order the
products.
Ponzi Scheme:
Named after Charles Ponzi, who ran such a scheme in 1919. A
Ponzi scheme is an investment scheme in which returns are paid
to earlier investors, entirely out of money paid into the scheme
by newer investors. Ponzi schemes are usually operated by a
central company or person, who may or may not be making other
false claims about how the money is being invested, and where
the returns are coming from.
Ponzi schemes don't necessarily involve a hierarchal structure,
as in a pyramid scheme there is merely one person or company
that is collecting money from new participants who join this
month to pay of people who joined last month.
Nearly every nation, and every government, has laws against
fraud. Most have specific laws against pyramid schemes, Ponzi
schemes, and similar operations.
When you create a product, that is worth more than what it cost
to produce, you've created wealth. When you perform a service,
which is worth more than it cost to provide, you've created
wealth.
If you spend a dollar for a lemon, some sugar, and some water;
and then use this to make sufficient lemonade that you can sell
twenty servings for ten cents each, then you've created
wealth.
You've taken ingredients worth a dollar, and used them to create
a product worth two dollars. You've created a dollar's worth of new
wealth.
Pyramid schemes produce no goods of any significance, and they
provide no service. They create no wealth. All they do is move existing
wealth.
Every dollar that one person gains through such a scheme is a
dollar that someone else has lost.
Participating in any pyramid scheme, ponzi scheme, or any other
scheme which promises that you will get rich quickly is foolish
at best. You will most likely only lose money to such a scheme,
and you may even find yourself subject to legal prosecution for
fraud.
True wealth is only gained through honest work, and honest
investment, in enterprises which produce goods and services of
value to all. There are no shortcuts, and anyone who tells you
otherwise is almost certainly out to cheat you.
|
