Pyramid Schemes
By Bob McDonnellMany thousands of Americans have lost money, and sometimes their life savings, participating in pyramid schemes.
Pyramid schemes come in many forms, but with an overriding characteristic: They promise large profits based primarily on recruiting others to join the program, rather than based on profits from the sale of any real goods or services.
“Pyramid schemes are dangerous cons that unfortunately ensnare many people every year,” said Amy Robinson, a vice president at the Direct Selling Association, which represents groups like Avon and Mary Kay, and lobbies for national laws against pyramid schemes.
During the latest session of the General Assembly, our Office worked to put new teeth into Virginia’s laws against such insidious schemes. Now it is a violation of the Virginia Consumer Protection Act, as well as a Class 1 misdemeanor, to “contrive, prepare, set up, operate, advertise or promote any pyramid promotional scheme.”
A scheme may purport to sell a product, but often simply uses the product to hide the pyramid structure. The people at the top of the pyramid reap profits at the expense of others down the pyramid. Some pyramid promoters try to make their schemes look like multilevel marketing methods, which are lawful business methods that use a network of independent distributors to sell consumer products. Beware, however, if little or no effort actually is made to market the products. In typical pyramid fashion, money is made from recruiting.
To avoid pyramid schemes, do not pay or sign any contracts in an “opportunity meeting” or any other high-pressure situation. Insist on taking your time to think over a decision to join. Avoid any plan that includes commissions for and emphasizes the recruitment of additional distributors (as opposed to sales of a product) as a primary means for participants to earn money.
Check with the Va. Office of Consumer Affairs and/or your local Better Business Bureau for complaint information about any plan you are considering, especially when the claims about the product or your potential earnings seem too good to be true.
Consumer protection is an important statutory duty of the Office of the Attorney General, and our staff can help. In an age of increased consumer issues, we all must continue to be educated and vigilant.