What exactly is a pyramid scheme and how do I spot one.

A challenge to finding a work-at-home opportunity is avoiding scams. One of the most feared swindles is the pyramid scheme. Unfortunately, most people do not know what a pyramid scheme is. As a result, they pass up viable direct sales opportunities they erroneously believe are pyramids, but sometimes are caught up in Internet or “investment” schemes that are illegal pyramids.

So what is a pyramid? First, a pyramid scheme is not defined by its shape. If the shape determined legality of an organization, the government and most businesses would be illegal since the hierarchy is a pyramid. Second, the act of recruiting others doesn’t automatically mean a business is a pyramid scheme. Instead, a pyramid is a scam that promises monetary benefit, but no product or service is involved. In an illegal network marketing scam, participants are paid to recruit new members instead of on product sales. This is where things can get confusing. While you can earn income by introducing new business builders into a network marketing company, your income should NOT be based on recruitment. Instead, legitimate income in network marketing is based on you and your team’s sales. Some Internet programs try to get by this rule by having a “membership” program with junk ebooks or services to qualify as products. You can spot these because the focus is on recruiting not on providing a product or service. Be suspicious of any business that focuses on payment per recruit.

Bernie Madoff ran a pyramid scheme in which people thought they were putting their money into legitimate investments. However, Bernie did not invest the money. Instead, he “paid” initial investors with money from newer investors. I had a friend who was invited to an investment “club” whereby he could invest $5000 and the club then would help him find five other people to invest $5000. Essentially the scam promised to net $20,000 from a $5,000 investment. Sometimes these clubs are called “gifting” programs, but regardless of what they’re called, they are illegal because they promise financial gain, without a product, service or legitimate investment instrument.

Ultimately, if the only way to make money is by getting others to “join”, then it’s probably a pyramid scheme. But, if the income is based on the sale of a product or service, or a legitimate investment tool (i.e. stocks), then it’s probably safe. Before joining any program, do your research. Scammers are clever in their deception and will try to make their scam look legit. So don’t be afraid to investigate, ask questions and seek expert opinions before joining any money-making venture.