Today we finish up on our current topic of pyramid scams, chain letters and Ponzi schemes. Today we put the latter under the microscope.
A Ponzi scheme, named after Charles Ponzi who defrauded people during the 1920s using this method, involves convincing people to invest in something for a guaranteed rate of return using the money of people who invested late to pay off the ones who invested earlier. Sounds a bit strange doesn’t it? So who exactly makes the money? The ones who got in early. Some people made some money. If I was to start a scheme such as this I would just take a bit of cream off the top and pay off enough people to make it appear as though it is working well, even if that means buying back in at the bottom. What it essentially means is that you need to be recruiting people constantly in at the bottom in order to pay those off who got in at the top. Once the recruiting stops, the cash flow ends and the scheme falls over.
Similar scams have surfaced over history. There have been those who take ‘investors’ money, go to Casinos where they hope to have a huge win in order to pay those investors back plus interest. But I think we all know that the odds are always clearly in favour of the Casinos.
In Romania in 1993 and Albania in 1997 thousands of people that really couldn’t afford to lose any money at all invested what little they had into an ‘opportunity’ and were swindled by a rather clever little pyramid scam. Romanian newspapers claimed that millions of Romanians lost their life savings in a scheme called “Caritas”. Reports from Albania claimed that hundreds of Albanians also lost their life savings and/or money they earned working abroad in one of several illegal pyramid schemes. The schemes offered high interest rates with early investors paid from latter investor deposits – that of a Ponzi scheme. It eventually failed when the operators failed to recruit new investors.
So for you seasoned networkers out there who are endlessly asked the question or even told “isn’t this a pyramid scam”, at least now you have knowledge to answer them articulately and concisely. I ALWAYS answer that question with a question “I totally understand. So (John), could you tell me what your understanding is of a pyramid scam.” Unfortunately, most people just don’t know exactly what it is. These crimes were perpetuated mainly in the 1980s and 1990s and only a small percentage of the population were affected. So it becomes a kind of “chinese whispers” kind of thing – people have heard of it, think they understand it and really don’t. It’s just ignorance and many people try to sound educated and clever by asking this question.
Once again, the clear distinction with network marketing is that number 1 – you are buying a product and/or service for your money; number 2 – there are never promises nor guarantees of rate of return and/or income; and number 3 – if you stop recruiting new people for a while, your income won’t completely stop.
It may stay the same, but it won’t stop. To those of you cynics and skeptics out there, please use this information responsibly so that people can be properly informed and therefore make educated decisions about our industry and opportunity. Let’s face it, mud never sticks does it?
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