Pyramid schemes have existed for more than a century and in a bewildering array of guises. Despite their differences, pyramid schemes tend to share common elements, such as a focus on recruitment of new members, promises of unrealistic or "guaranteed" returns and, most importantly, the inevitable threat of collapse. Increasingly, pyramid scheme operators have tried to cloak their scams as multi-level marketing (MLM) opportunities through the sale of dubious products or services with little or no established market. Legitimate MLM businesses, also known as "networking marketing," operate legally and offer goods and services through independent distributors. In legal MLMs, the focus of the business is on sales of products, not the recruitment of new members into the business.
In the ORC telephone survey of Americans ages 18 or older conducted February 12-15, 2009, many respondents - particularly African-Americans, Hispanics, and those with low incomes - revealed themselves to be at risk of falling for pyramid schemes disguised as legitimate work-from-home opportunities. Lower-income consumers (those reporting annual income of less than $35,000) were found to be more likely to mistake pyramid schemes for legitimate ways to provide supplemental income (42 percent vs. 33 percent of all respondents). They were also least likely (61 percent), as compared with all respondents (66 percent), to correctly identify pyramid schemes as a scam. Similarly, African-American (46 percent) and Hispanic (48 percent) consumers surveyed were more likely to consider a home-based business than the average (31 percent) yet less able to identify a pyramid scheme as a scam (48% and 35%, respectively).
Overall, an alarming number of respondents reported being approached to join some type of fraudulent pyramid scheme including chain letters (33 percent), general pyramid schemes (21 percent), gifting clubs (12 percent), and Ponzi schemes (7 percent).
"In a time like this, when many are struggling to make ends meet, some consumers may lower their guard and find themselves considering offers that - under other circumstances - they would rightfully identify as sketchy and high-risk," said Sally Greenberg, NCL Executive Director. "NCL's Fraud Center is alerting consumers to use their heads when it comes to searching for new offers of income. Scammers advertise pyramid schemes as businesses that provide 'easy money' or 'guaranteed income.' Consumers must keep a level head, even when times are tough, and remember the old adage: if it sounds too good to be true, it probably is."
