The Pyramid Scheme And What It Really Means

You have been approached about a multi-level investment scheme that offers great-sounding profits with little or no risk.

You are asked to pay a fee to join the scheme.

You have enrolled others on the scheme and already earned money from your efforts.

Sounds familiar?

Welcome to the Pyramid Scheme!

As its name indicates, the pyramid scheme is structured like a pyramid. It typically starts with one person (the initial recruiter) who is on top at the apex of the pyramid.

This person recruits a second who is required to “invest” a certain amount, which is paid to the initial recruiter. In order to make his or her money back, the new recruit must recruit more people under him or her, each of whom will also have to invest. If the recruit gets 10 more people to invest, he or she will make a profit with just a small investment.

Further, the new people become recruiters and each one is in turn required to enlist an additional 10 people, resulting in a total of 100 more people. Each of those new recruits is also obligated to pay their investment to the person who recruited him or her.

Recruiters get a profit of all of the money received, minus their initial investment paid to the person who recruited them. The process continues until the base of the pyramid is no longer strong enough to support the upper structure, and there are no more recruits.

The problem is that the scheme cannot go on forever, because there are a finite number of people who can join the scheme. People are deceived into believing that by giving money, they will make more money; however, no wealth has been created, no product has been sold, no investment has been made, and no service has been provided so how then are the profits made?

By recruiting more people? What happens then when you have recruited the set number of people you are supposed to? How then do you make your money?

The fraud lies in the fact that it is impossible for the cycle to sustain itself, so people will lose their money somewhere down the line. Those who are most vulnerable are those toward the bottom of the pyramid, where it becomes impossible to recruit the number of people required to pay off the previous layer of recruiters. This kind of fraud is illegal in most countries including Ghana.

The operations of such schemes are contrary to section 6(1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930).

Despite the illusion of legality presented by these schemes, they are still illegal.

Your money is not actually invested in any product. Instead, it’s simply passed up the chain of investors. Because pyramid schemes are unauthorised and make no profits, you’re very unlikely to recover any lost investment. While the fraudster at the top will collect most of the profits, those who entered the scheme later end up losing out.

Legitimate trading schemes rely on valuable goods and services, while illegal pyramid schemes focus simply on recruiting more and more investors.

Not that we are telling you what to do with your money but the next time someone approaches you with such a scheme you should be able to ask legitimate questions and be able to determine if it is actually worth it or not.

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