The Most Famous Pyramid Schemes: How They Duped Investors
Pyramid schemes are a type of multi-level marketing company that have been around for years. They are designed to pay more for recruiting new members or distributors than it does for selling an actual product. In other words, these schemes promise large profits to investors for recruiting others. While some pyramid schemes may be legitimate, most of them are scams. In this article, we will take a look at the most famous pyramid schemes that scammed investors out of their hard-earned money.
What is a pyramid scheme?
A pyramid scheme is a type of investment scam that promises large profits for recruiting new members or distributors. Pyramid schemes are also sometimes called Ponzi schemes.
What are the red flags of a pyramid scheme?
There are several red flags that you should be aware of if you think you may be involved in a pyramid scheme. These include:
- Promises of high returns with little or no risk: Pyramid schemes often promise investors huge returns for little or no risk. This is a major red flag, as most investments come with some level of risk.
- Pressure to buy in: You may be pressured to join a pyramid scheme by friends or family members who are already involved. Be wary of any investment that requires you to make a decision quickly without doing your own research first.
- Recruiting others is emphasized: In a legitimate investment, the focus is on selling a product or service. In a pyramid scheme, the focus is on recruiting others to join the scheme.
- Products are overpriced: Pyramid schemes often sell products that are overpriced and have little or no value.
Are pyramid schemes the same as Ponzi schemes?
Pyramid schemes are sometimes called Ponzi schemes. Both pyramid and Ponzi schemes are types of investment scams that involve promising investors high returns with little or no risk. However, there is one key difference between the two:
Ponzi schemes only pay returns to earlier investors from the money invested by later investors. Pyramid schemes pay returns to earlier investors from the money invested by all investors.
Both pyramid and Ponzi schemes are illegal in most countries.
Why is it called a Ponzi scheme?
The Ponzi scheme is named after Charles Ponzi, who ran a pyramid scheme in the early 1920s. Ponzi promised investors that he could double their money within 90 days by investing in international reply coupons. These coupons were used to buy postage stamps from other countries and then sold at a profit in the United States. However, Ponzi was not actually investing the money as promised. Instead, he was using money from new investors to pay returns to earlier investors.
What are some famous pyramid schemes?
Now that we've covered what a pyramid scheme is and how to identify one, let's take a look at some of the most famous pyramid schemes in history.
The most famous pyramid scheme in recent history is Bernie Madoff's Ponzi scheme. In this scheme, Madoff promised investors huge returns if they invested with him. However, instead of investing the money, Madoff simply used the money from new investors to pay off the old investors. This scheme eventually collapsed, leaving many people out of pocket. Madoff was sentenced to 150 years in prison.
One of the most famous pyramid schemes is Amway. Amway is a multi-level marketing company that sells health, beauty, and home care products. The company was founded in 1959 and is based in Ada, Michigan. Amway has been the subject of numerous lawsuits and investigations for allegedly operating as a pyramid scheme. In 2010, the company agreed to pay $56 million to settle a class-action lawsuit that accused it of being a pyramid scheme.
Another well-known pyramid scheme is Herbalife. Herbalife is a multi-level marketing company that sells health and wellness products. The company was founded in 1980 and is based in Los Angeles, California. Herbalife has also been the subject of several lawsuits and investigations for allegedly operating as a pyramid scheme. In 2016, Herbalife reached a $200 million settlement with the Federal Trade Commission over allegations that it was a pyramid scheme.
One example of a famous pyramid scheme is LuLaRoe. LuLaRoe is a multi-level marketing company that sells women's clothing. The company was founded in 2012 and is based in Corona, California. LuLaRoe has been the subject of numerous lawsuits and investigations for allegedly operating as a pyramid scheme. In 2019, the company agreed to pay $49 million to settle a class-action lawsuit that accused it of being a pyramid scheme.
Other examples of pyramid schemes include:
- Vemma: A multi-level marketing company that sells energy drinks. The company was founded in 2004 and is based in Scottsdale, Arizona. Vemma was the subject of an investigation by the Federal Trade Commission for allegedly operating as a pyramid scheme. In 2016, the company agreed to restructure its business and pay a $238 million settlement.
- Nu Skin: A multi-level marketing company that sells personal care products. The company was founded in 1984 and is based in Provo, Utah. Nu Skin has been the subject of numerous lawsuits and investigations for allegedly operating as a pyramid scheme. In 2014, the company agreed to pay a $750,000 fine to settle allegations that it was a pyramid scheme.
- USANA: A multi-level marketing company that sells nutritional supplements. The company was founded in 1992 and is based in Salt Lake City, Utah. USANA has been the subject of numerous lawsuits and investigations for allegedly operating as a pyramid scheme. In 2018, the company agreed to pay a $225 million settlement to resolve allegations that it was a pyramid scheme.
- ZeekRewards: A multi-level marketing company that offered rewards to customers for shopping at Zeekler.com, a penny auction website. The company was founded in 2010 and is based in Lexington, North Carolina. ZeekRewards was shut down by the Securities and Exchange Commission in 2012 for operating as a pyramid scheme.
- Digital Altitude: A multi-level marketing company that sold training courses on how to make money online. The company was founded in 2014 and is based in Westlake Village, California. Digital Altitude was shut down by the Federal Trade Commission in 2017 for operating as a pyramid scheme.
- MOBE: A multi-level marketing company that sold training courses on how to make money online. The company was founded in 2011 and is based in Tacoma, Washington. MOBE was shut down by the Federal Trade Commission in 2018 for operating as a pyramid scheme.
- TelexFree: A multi-level marketing company that sold VoIP service. The company was founded in 2006 and is based in Marlborough, Massachusetts. TelexFree was shut down by the Securities and Exchange Commission in 2014 for operating as a pyramid scheme.
- Paycoin: A cryptocurrency company that promised to revolutionize the payments industry. The company was founded in 2014 and is based in New York, New York. Paycoin was shut down by the Federal Trade Commission in 2015 for operating as a pyramid scheme.
- BitConnect: A cryptocurrency company that promised to revolutionize the investments industry. The company was founded in 2016 and is based in London, England. BitConnect was shut down by the Securities and Exchange Commission in 2018 for operating as a pyramid scheme.
- OneCoin: A cryptocurrency company that promised to revolutionize the payments industry. The company was founded in 2014 and is based in Bulgaria. OneCoin is currently under investigation by law enforcement agencies around the world for allegedly operating as a pyramid scheme.These are just a few of the most famous pyramid schemes in history. If you think you may be involved in a pyramid scheme, it’s important to get out as soon as possible. These schemes always collapse eventually
Pyramid schemes are illegal in many countries around the world. In the United States, the Federal Trade Commission has taken action against several companies for allegedly operating pyramid schemes. If you think you may have been scammed by a pyramid scheme, you should contact your local law enforcement or consumer protection agency. You can also file a complaint with the FTC.
Be sure to do your research
If you're thinking about investing in a multi-level marketing company, be sure to do your research first. There are many legitimate companies out there, but there are also many pyramid schemes masquerading as legitimate businesses. Don't let yourself be scammed by one of these schemes.
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