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  • In 2004,

  • a new company called Vemma Nutrition

  • started offering a life-changing opportunity

  • to earn full time income for part time work.

  • Vemma's offer was open to everybody,

  • regardless of prior experience or education.

  • There were only two steps to start get started earning:

  • purchase a $500-600 kit of their liquid nutrition products,

  • and recruit two more members to do the same.

  • Vemma Nutrition Company grew quickly,

  • becoming a global operation

  • that brought in 30,000 new members per month at its peak.

  • There was just one problem

  • while the company generated $200 million of annual revenue by 2013,

  • the vast majority of participants earned less than they paid in.

  • Vemma was eventually charged with operating a pyramid scheme:

  • a common type of fraud

  • where members make money

  • by recruiting more people to buy in.

  • Typically, the founder solicits an initial group of people

  • to buy in and promote the scheme.

  • They are then encouraged to recruit others

  • and promised part of the money those people invest,

  • while the founder also takes a share.

  • The pattern repeats for each group of new participants,

  • with money from recent arrivals funneled to those who recruited them.

  • This differs from a Ponzi scheme,

  • where the founders recruit new members

  • and secretly use their fees to pay existing members,

  • who think the payments come from a legitimate investment.

  • As a pyramid scheme grows,

  • it becomes increasingly difficult for new recruits to make money.

  • That's because the number of participants expands exponentially.

  • Take a structure where each person has to recruit six more to earn a profit.

  • The founder recruits six people to start,

  • and each of them recruits six more.

  • There are 36 people in that second round of recruits,

  • who then each recruit 6 people

  • a total of 216 new recruits.

  • By the twelfth round of recruiting,

  • the 2.1 billion newest members would have to recruit

  • over 13 billion more people total to make money

  • more than the entire world population.

  • In this scenario,

  • the most recent recruits,

  • over 80% of the scheme's participants,

  • lose all the money they paid in.

  • And in real life,

  • many earlier joiners lose out too.

  • Pyramid schemes are illegal in most countries,

  • but they can be difficult to detect.

  • They are presented as many different things,

  • including gifting groups,

  • investment clubs, and multi-level marketing businesses.

  • The distinction between pyramid schemes and legitimate multi-level marketing

  • can be particularly hazy.

  • In theory, the difference is that

  • the members of the multi-level marketing companies

  • primarily earn compensation from selling a particular product or a service

  • to retail customers,

  • while pyramid schemes primarily compensate members for recruitment of new sellers.

  • In practice, though,

  • many multi-level marketing companies make it all but impossible

  • for members to profit purely through sales.

  • And many pyramid schemes, like Vemma Nutrition,

  • disguise themselves as legal multi-level marketing businesses,

  • using a product or service to hide the pay-and-recruit structure.

  • Many pyramid schemes also capitalize on already existing trust within churches,

  • immigrant communities, or other tightly knit groups.

  • The first few members are encouraged to report a good experience

  • before they actually start making a profit.

  • Others in their network follow their example,

  • and the schemes balloon in size

  • before it comes clear that most members aren't actually profiting.

  • Often, the victims are embarrassed into silence.

  • Pyramid schemes entice people with the promise of opportunity and empowerment.

  • So when members don't end up making money,

  • they can blame themselves rather than the scheme,

  • thinking they weren't tenacious enough to earn the returns promised.

  • Some victims keep trying,

  • investing in multiple schemes,

  • and losing money each time.

  • In spite of all these factors,

  • there are ways to spot a pyramid scheme.

  • Time pressure is one red flag

  • be wary of directives toact now or miss a once-in-a-lifetime opportunity.”

  • Promises of large, life-altering amounts of income are also suspect.

  • And finally, a legitimate multi-level marketing business

  • shouldn't require members to pay for the opportunity to sell a product or service.

  • Pyramid schemes can be incredibly destructive to individuals,

  • communities, and even entire countries.

  • But you can fight fire with fire

  • by sending this video to three people you know,

  • and encouraging them to do the same.

In 2004,

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B1 UK TED-Ed pyramid scheme recruit marketing multi

How to spot a pyramid scheme - Stacie Bosley

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    shuting1215 posted on 2019/04/07
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