Financial Pyramids: Fraud Schemes

The topics of financial pyramids have been known in our country for a long time, and they became widely recognized at the end of the 1990s. Such schemes were advertised on television, and people seeking easy money became victims of financial pyramids, with many willing to invest in suspicious projects.

Financial Pyramids

A financial pyramid is a structured fraud scheme involving many people with the recruitment of new participants. By contributing money and inviting new members to the pyramid, this phenomenon grows, and its founders profit.

No matter how fraud schemes are disguised, a financial pyramid always works by attracting new members, where no real income is generated, and payouts are made from the investments of new victims. You might get a small income at first, but such schemes don't last long. Once enough money is collected, the fraudsters disappear, the pyramid collapses, and all participants in the lower layers of the pyramid lose their money entirely.

Ponzi Schemes

In the early twentieth century, there was an American named Charles Ponzi who created a company engaged in arbitrage but failed in this endeavor and began attracting more clients. He paid returns on their investments to previous investors; this scheme turned out to be a fraud, hence the name Ponzi scheme.

It can be said that Ponzi schemes are foundational for financial pyramids. A person easily influenced might fall victim to such a scam; to avoid this, it is necessary to use:

• critical thinking,
• alertness and attention to detail,
• asking questions,
• interest in the product where you are investing money.

If these are absent and the source of income is unknown, it is clearly a Ponzi scheme.

How to Recognize a Financial Pyramid

When faced with an enticing investment offer, it's essential to secure your funds and take the time to study and verify the company offering the investment, for example:

• consult the registry where legal organizations are registered and look for it there;
• also refer to the state registry of legal entities, where data on such companies is stored;
• don't hesitate to visit the tax website service, where information about the organization's taxes is available;
• search the internet for reviews about the company;
• thoroughly study the company's documentation and credentials.

If even one point raises doubts, it's better not to rush into investments or even refuse enticing offers. Scammers will always apply psychological pressure, promising sky-high returns.

Signs of Pyramid Schemes

The signs of pyramid schemes look like this:

• large monetary investments are required,
• high returns with the possibility of quick repayment are offered;
• the project is presented as innovative;
• the need to attract acquaintances and relatives to invest in the project;
• the company requiring investments was recently registered;
• aggressive and intrusive advertising, popping up online, sent to phones using enticing offers of draws, gifts, and prizes;
• when studying the contract, no responsible person is found; if financial risks arise, the fake company will lack a license to operate in the financial market;
• the company doesn't shy away from receiving cash, insists on internet payments.

Investing in Pyramids

Investing in pyramids is a risky and financially dangerous endeavor; to protect people from financial pyramids, it may be necessary to educate them in financial literacy. This means understanding what a financial cushion is, how taxes are paid, their intended purpose, and understanding pension systems and more.

Perhaps with such knowledge of finance and investments, there will be fewer people deceived into joining financial pyramids. Realizing that investments cannot suddenly and quickly generate high returns can help prevent rash decisions, quick investments, and expectations of inflated dividend payments.

Investment Scams

The scammer's goal is to make money without caring about the feelings of the person they tricked. Don't perceive seemingly profitable financial offers as magic, where with a wave of a wand and a wish, dreams come true.

To avoid becoming a victim of fraudsters, it's necessary to understand that existing schemes are designed for a trusting victim, their desire to get rich quickly, and dreams of exorbitant incomes in the shortest possible time.