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How to recognize a financial pyramid

Finance
06.10.2021
310
How to recognize a financial pyramid

Unfortunately, among honest and open business schemes, there are fraudulent ones. Building a financial pyramid is one of the ways to cheat. For its creators, it is a source of large earnings, and for those who have invested it is a synonym for significant losses. Despite the fact that the idea is not new, people still continue to believe and give their savings to frauders.

One of the most effective ways to combat such a criminal activity is to provide information on how to recognize a financial pyramid and not become a member of it. The more potential victims know what the features of a pyramid scheme are, the less profit will be received by dishonest organizers. Let’s consider how not to become a victim of fraudsters.

What is a pyramid scheme and how does it work

A financial pyramid is a way of organizing a business in which the system participants receive income by attracting new investors. All funds are either held by the organizer, or new flows of funds go to payments to those who entered earlier. Despite the fact that such a scheme is deliberately fraudulent, there are situations when ordinary business turns out to be a kind of pyramid. It happens in the case of incorrect construction of a business model and errors in calculations. The company, for whatever reason, does not take into account all costs and at some point starts to work at a loss. To keep afloat, one has to take out a loan or look for investments to pay off old debts. A full refund is not possible, however, it would not be entirely correct to consider it as a fraud.

The principle of the pyramid scheme, which was conceived by the organizers, is a regular influx of new participants who contribute their funds there. Without this, it is impossible to ensure the viability of the entire system. As soon as the flow of those who want to become a victim of deception decreases, the project collapses, taking with them the money of people that they did not have time to take.

Such “business” is criminally punishable, however, only a small number of organizers were prosecuted. But with the return of deposits, it is still more sad: they are usually lost forever.

What are the financial pyramids and what are their peculiarities?

Despite the fact that the creators of the pyramid scheme always tell about the fact that their project is fundamentally new, if you take a closer look, you will notice that any such structure belongs to one of the following types.

  1. Ponzi scheme or the most primitive one-level pyramid. Its essence is that the organizer attracts depositors’ funds, promising them a high percentage. The rate is profitable, the investment period is short, and it is not necessary to attract new people – they come on their own. Payments to the first to enter can be made even from their own funds. And in the future, the funds of the depositors are used for this. When the number of people willing to invest decreases and it becomes clear that it will be difficult to pay off, the project is closed.
  2. Multilevel pyramid. This structure is similar to that of network marketing companies. Usually, such pyramids are just disguised as an MLM business or investment. The percentage promised to the participants exceeds the banking one by tens or even hundreds of times. However, each depositor is obliged to bring a few more people. The rest of the principle is the same as in the single-tier scheme. The greatest losses are incurred by those at the lowest level.
  3. Matrix pyramid. It is a more complex version of the previous version. Such types usually offer a real product that most people are interested in. They can appear in each sphere: from training courses to precious metals. In order to receive a payment, an enrollee needs to pay a fee (or make a purchase) and wait until his part of the matrix is ​​filled, inviting people to speed up this process.

Signs of a pyramid scheme

While creating a fraudulent project, the organizers are trying to come up with something new to lull the vigilance of potential victims. However, these schemes have common features. If we consider the signs of financial pyramids briefly, then attention should be paid to the following points:

  • Too attractive interest rates for a short investment period. In fact, any percentage that is even slightly higher than what is offered in banks should be perceived apprehensively. And if we are talking about 100-500% per annum, then it is all the more reason to think it over.
  • Substantial amount of the down payment. Investors are not given the opportunity to enter the project with any amount, setting its minimum.
  • An offer to buy a product of questionable quality at an inflated price or the issuance of fake securities. The pyramid does not carry out any activity, except for taking money away from those who entered it. Therefore, you cannot buy something of value there. In addition, no documents are issued confirming the receipt of funds.
  • Broad advertising, hype and PR. The company pays great attention to creating noise around itself. Media, celebrity engagement, large-scale presentations and other ways to make yourself known with a call to join.
  • Doubtful constituent documents.Pyramids usually hide the name of the owner, they are registered in offshore zones, and also do not have a license issued by the Central Bank to carry out financial transactions.
  • There is a requirement to involve friends, acquaintances and relatives in the project. It is one of the clearest signs that you have a pyramid in front of you.
  • Perseverance of the participants and a complex plan for making a profit. The victim of the pyramid is not allowed to change his or her mind, forcing them to deposit money immediately. Also, when the question arises of how to collect the promised interest, a difficult path arises from the actions to be done and vague deadlines.

How long does a financial pyramid live on average and how not to become a participant of its activity

As a rule, the life cycle of a financial pyramid is short: from 2 to 6 months. It happens that the pyramids live for several years, but most often the first signs of a collapse appear much earlier than everything is officially closed. No matter how long the project lasts, the most reliable way to save your money is not to become a participant at all. There are simple rules to escape it:

See if there is information about the company in the register of financial institutions.

Check it for a license issued by the Bank of Russia. Yes, some companies, including non-pyramid schemes, work on a crowdfunding system and do not need a license. In any case, it would be optimal to entrust your savings to an organization controlled by the state regulator.

Search the web for information. As a rule, wide PR has an opposite side: the presence of reviews from those who dealt with the pyramid or has any information about its work. Of course, a large amount of negative information should, at least, be alert.

Thus, if we try to explain what is the financial pyramid and how it operates using simple words , the definition will be the following: it is a fraudulent scheme that has signs of illegal activity, ranging from registration outside the country in which it operates and finishing with the methods of taking funds from gullible citizens.

For those who realized that they have already become part of such a project, there are several steps that can help save the situation:

  1. It is necessary to make every effort to get your money back. Written requests and claims, and threats to go to court can serve as the examples of the necessary actions. In this case, everything is fair.
  2. It is important to collect facts that will prove the transfer of money: contracts, account statements, correspondence.
  3. You need to find the same depositors in order to file a class action lawsuit.
  4. You should write a statement to law enforcement agencies and be sure to make public the available information that the company’s activities have signs of fraud.
  5. And, the most important, you should not trust dubious offers that promise to get rich easily and quickly.
Author:My Profit

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