When you stumble on what appears to be a good way to make money, it can be difficult to determine whether it’s legitimate.
Some of these opportunities can help you get ahead financially , while others might be scams such as pyramid schemes.
Here are some of the biggest and nastiest pyramid schemes of the past.
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What is a pyramid scheme?
A pyramid scheme requires people to invest money in a program and then recruit others to invest money in the program to generate more revenue.
Investors who get in at the beginning may make money as the cash travels up to the few investors at the top. The scheme eventually falls apart, however, once it becomes impossible to recruit new investors.
At that point, the folks at the bottom of the pyramid absorb a financial loss.
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Multi-level marketing (MLM) shares some similarities with a pyramid scheme. In MLM, sellers buy products that they resell while also recruiting others to work under them.
However, there is a big difference between MLM and pyramid schemes. MLM involves selling a legitimate product, which makes it a legal venture.
Multi-level marketing allows people to sell products as their main source of income, while a pyramid scheme’s main purpose is recruiting others into the scheme
1. BurnLounge
BurnLounge asked musicians and others to sell songs through an internet storefront. Participants paid a subscription and made cash by recruiting others to BurnLounge.
The federal government viewed BurnLounge as a pyramid scheme and sued to shut down the service. The government eventually won the case, and BurnLounge no longer exists.
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2. Fortune Hi-Tech Marketing
Fortune Hi-Tech Marketing was founded in 2001 as a way for people to make money by selling different retail items such as cellphones and beauty products.
But like other pyramid schemes, investors were making more money by recruiting others into the scheme than actually selling products. The Federal Trade Commission (FTC) moved against the company in 2013 and eventually shut it down.
3. WakeUpNow
The MLM company Wake Up Now sold a variety of goods and services, ranging from household goods to tax services.
The company even became popular with hip-hop artists as it tried to earn credibility. In 2015, it shut down.
4. Vemma
Vemma recruited participants to sell dietary supplements through websites or affiliate distributors.
However, the FTC sued the company in 2015 for deceptive practices. The FTC alleged Vemma gave out greater rewards for sellers who recruited more sellers rather than for actually selling the company’s energy and weight loss drinks.
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Pyramid schemes have been around for a long time. One of the more famous schemes was Holiday Magic, which began operations in 1964 to sell cosmetics and home-care products.
The company was dissolved a decade later after investigations by the FTC.
6. Equinox
William Gouldd founded Equinox in 1991. By 2000, the company had been closed after the FTC sued it for running a pyramid scheme.
Equinox settled with the FTC and law enforcement in eight states. It paid almost $40 million to consumers who lost money as part of the scheme.
7. Metabolife
Metabolife started in the 1990s selling dietary supplements that were found to be connected to several deaths. That led to the Food and Drug Administration banning supplements containing ephedra in 2004.
Metabolife ended up dissolving a year later.
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8. United Sciences of America
United Sciences of America began in the 1980s by selling nutritional supplements as part of a multi-level marketing company.
The company was later accused of fraud and filed for bankruptcy, which led to its collapse in 1987.
9. Bottom line
Steering clear of pyramid schemes is a great way to avoid wasting money . Here are some tips for staying safe from these scams:
- Research before investing in a company or organization . If something doesn’t seem legitimate, it probably isn’t. If the company makes any promises, make sure you get them in writing.
- Find out whether you must buy the product before selling it . According to the Office of the New York State Attorney General, good companies will buy back at least 80% of what you paid for the product if things don’t work out.
- Beware of any program that requires high startup costs . Also, be skeptical of any program that promises big profits fast.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt . Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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