Pernicious Geometry

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One thing that distinguishes our community as Latinos from others is that, our sense of community. The bonds among neighbors, coworkers are tighter than in other groups.

And a very important thing in our culture is the value of word of mouth. I’m talking about the practice of internal referrals of a certain product, store or service; a recommendation that comes from a cousin has more weight than any advertising ever could. The opinion of our close ones will beat any promotion.

That’s why today I want to speak of a scary subject, because there are frauds that are so subtle that their very victims don’t even realize they are being scammed and in the long run, they can involve friends, loved ones, and even the community, in the loss. I’m referring to the pyramid schemes.

In the 90s one of these schemes affected the members of OAS FCU and caused quite a stir. This is how it worked:

A friend or coworker would come to a member and invite him/her to join a “lucky pyramid”;

the person had to give $500 to the person, and recruit 5 people who would invest under him/her in turn. When those 5 people gave the person their $500 in turn, he or she would have to share $250 with the one who recruited him/her, and got to keep the rest. When those he or she recruited also got money for several “levels” and, after a certain number of levels, dropped off the ladder. This scheme took place among friends and coworkers and took off lightning-speed. Soon enough the whole thing blew up and some of the people up the pyramid (not our members!) were even arrested.

In those the first days of internet, these schemes were very popular via email, and I remember that there was a huge one that eventually got busted, by the name of Flower of Plenty. Since those days these schemes have evolved and adapted, with schemers that are far more subtle in their tactics. That’s why, and as an ending to this National Cybersecurity Awareness Month, I am going to explain what pyramid schemes look like today.

An investment no more

Today’s pyramids hide behind a facade of multinationals that sell ‘exclusive products of the

highest quality’. If you’re on Facebook, Instagram or use streaming sometimes, you must have noticed those ads or posts saying something like “work from home and earn $5,000 a

month” or “work from home and make a bit of extra cash to pay the bills”. If you have ever looked into these you will see that you will be asked to sell a product ‘so good it sells itself’: a weight loss product, an exercise gadget, nutritional supplements, or a natural remedy for some common ailment.

And these products look good: they claim to be from a multinational with millions of dollars a year in sales, with scientific studies proving their effectiveness, and even personalities from TV or sports attesting to their value via letters or videos. 

The catch

These companies supposedly seek enterprising salespeople who want to sell the merchandise among friends, family, or their community. The more they sell the more they earn. But, before selling, the entrepreneur in question must buy the merchandise from the multinational, at a supposed discount so that when they sell it forward they keep the earnings.

And then…

Trouble starts. The victim has trouble selling the product because it’s something nobody’s ever heard of. When they realize it, they’re faced with these choices:

• To give up. That’s something nobody wants to do at first because they realize they’ll lose all their money;
• To purchase a “different product lot” from the company, one that is pricier but is of higher quality and assured to sell better;
• To attend training sessions (at a cost) to learn to sell the product; or
• To recruit other entrepreneurs, creating a regional office of which the victim would be manager and would obtain commission from others’ purchased lots of products. And to do this, of course, there are training sessions, for which of course the victim has to pay as well.

This way, the victim invests even more time and money into the scheme without realizing that the money he or she spends is only of benefit to those above. Even worse, in his or her attempts to make money or recruit more people, the victim will possibly alienate those around him/her or even involve them, unknowingly, as subsequent victims.

Sooner or later the victim gives up, understanding that they are not going to get their money back. By that time the damage is done, and it’s possible that the repercussions could extend his or her family and/or community…

We need awareness
There are many legitimate companies that work using a similar dynamic, something called a Multi-Level Marketing system. Burger King, Avon, Midas use these systems in the creation of franchises. But it is up to the consumer to learn to distinguish a scam, because that old line of not everything that shines is gold is truer than ever these days. If something looks too good to be true, then it isn’t true.

Yes, they have been declared a pyramid
in several countries.

These are the main features of pyramid scams disguised as employment opportunities:An offer to work from home to make extra cash or large amounts of cash a month;

• The company has a complicated commission scheme, sometimes referred to as a ‘marketing plan’;
• They emphasize that they seek enterprising sales people with strong leadership and recruitment skills, and put a lot of stress on the recruitment side of the job;
• They require an initial purchase (called a membership, for example) or the purchase of the product for its later sale; and
• They sell a product or series of products that are never for sale in stores (this is a big clue).

If you see an add offering all these, from a company you’ve never heard of, you’re looking at a pyramid. If you think that you might be looking at a less-known but authentic multi-level marketing company, and not a pyramid scam, you can check out the company’s credentials at the Better Business Bureau. 

Please pass this information forward to anyone you know who might be thinking of trying out one of those job offers.