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We talk a lot about Ponzi schemes and how to recognize them before you
invest your cash, but we rarely talk about pyramid schemes. Any securities
fraud attorney can tell you that, although the signs of a Ponzi scheme
and the signs of a pyramid scheme can be similar, there are some specific
things you should be watching for if you suspect a pyramid scheme. Although
Ponzi schemes and pyramid schemes both try to keep up an air of legitimacy while paying
off investors with new investors’ cash, the real difference is in
how much work the investor is asked to do. Because of this, there are
a few distinct differences in spotting these investment scams.
Here are some of the most common “red flags” of pyramid schemes:
You’re asked to pay for training. Very few legitimate investment enterprises would ever ask you to pay for
training upfront; even the idea of paying for continuing training is suspicious.
You don’t understand the specifics of how the program is supposed to work. If you can’t make sense out of the investment techniques or descriptions
of investment software, make sure you ask questions until you’re
certain you understand how it works. Many fraudsters will rely on their
clients not asking too many questions.
You’re asked to promote the program to your family and friends. You should never find yourself promoting investments to your family and
friends for the referral benefits in an investment plan. This is one of
the most classic signs of a pyramid scheme.
You hear a lot about why the program isn’t a pyramid scheme, but
you don’t hear much else. If the only information you receive is about how well the program is performing
and why it isn’t a pyramid scheme, you might want to start looking
over your statements for some hard numbers, real results, and any suspicious activity.
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