This is part five of a 10 part series.

People often hear about pyramid schemes via friends and family, which makes the ‘opportunity’ seem even more appealing as it has been tried and tested by people they know. People involved at a low level may not be aware they are part of a scam, but believe it to be a legitimate opportunity.

Pyramid schemes are often promoted as multi-level marketing businesses that allow independent representatives to sell goods and earn a commission. Usually, instead of earning a commission from the sale of products, the victim is actually making money from the continuous recruitment of new distributors who are lured into purchasing overpriced items in order to join the scheme.

Promoters at the top of the pyramid make their money from the fees from new recruits and the overpriced products they sell to them, which can be of little or no value. The lack of viability of the product means the only way the new recruits can make back their initial investment is to recruit more people and convince them to part with their money.

Warning signs of such schemes may be opportunities that offer you the chance to make significant money by recruiting new members to the scheme where the goods in question are of doubtful real value and serve only to promote the scheme itself. In some cases, there may be no goods for sale at all.

Often participants are requested to pay a significant up-front cost such as a joining fee.

The promoters of these schemes are often masters of group psychology and group meetings can be frenzied and buzzing with enthusiasm about the scheme potential.

Before parting with any money you should analyse carefully the products in question and ask yourself if you would buy the product, or if there is a place for it in the market.

You should avoid any programme that focuses more on recruitment than the products sold and schemes that expect you to part with money upfront.

If you think you have been a victim of a pyramid scheme you should contact your local office of fair trading or a Certified Fraud Examiner who can investigate the scheme.

KRyS Global, a fraud investigation and asset recovery firm based in Bermuda, wrote this article as a way to increase community awareness about fraud. For more information contact Mathew Clingerman, managing director, KRyS Global at Mathew.Clingerman@krys-global.com