How pyramid schemes operate and rip you off

A pyramid scheme is an illegal investment scam based on a set-up of network marketing. Some people call this a Ponzi scheme.

This is according to the National Consumer Commission in a document released last Tuesday.

The commission says that in a pyramid scheme, an organisation compels individuals who wish to join to make a payment. In exchange, the organisation promises its new members a share of the money taken from every additional member they have recruited.

The directors of the organisation also receive a share of these payments. For the directors, the scheme is potentially lucrative even if they have done nothing. The organisation’s membership has a strong incentive to continue recruiting and funnelling money to the top of the pyramid.

New recruits make up the base of the pyramid and provide the funding, or so-called returns, in the form of new money outlays to the earlier investors or recruits structured above them in the scheme.

A pyramid scheme does not usually involve the selling of products. Rather, it relies on the constant inflow of money from additional investors that works its way to the top of the pyramid.

Pyramid schemes are illegal in SA and the consumer commission  warns people against such schemes. If found to be running the scheme, criminal charges can be laid against directors of the scheme. - DispatchLIVE