Image credit: Angelica Alzona

Have you ever gotten a weird phone call from your home area code? Or maybe someone you used to know randomly invites you over to dinner, mentioning something about a business opportunity. These are sure signs that someone is trying get you involved in a pyramid scheme, and that’s bad, because pyramid schemes are bad.

In my three decades on Earth, I’ve had three close calls with pyramid scheme pitches. I say “close calls” not because I almost signed up; I use that phrase because even passing exposure to a pyramid scheme can leave one feeling somehow dejected and generally confused about the state of mankind. Nobody wants to look a friend in the face and call them crazy for buying into some scam. Simply saying no also stands to affect your relationship in unpredictable ways, although you might be fine with that after sitting through an hour-long presentation about how to get ripped off in four simple steps while sipping tepid coffee and wondering if you could fake an illness to get out of the ordeal.

Advertisement

Let’s back up a second, though. You know what pyramid schemes are, right? They’re a form of financial fraud, illegal in most of the world’s developed countries. The basic concept hinges upon a set of directors recruiting a class of participants who are promised profits if they recruit a layer of participants under that. There’s often a product involved like maybe health products, and that means participating will cost the poor participants some money. Over time, the layers stack up, expanding exponentially, and inevitably, the organizational structure looks like a pyramid.

The term pyramid scheme is sometimes used synonymously with Ponzi scheme or, more generally, multi-level marketing. These are three different things, though. A Ponzi scheme is essentially the same idea as a pyramid scheme, except you don’t have to do anything after you buy in. It’s just an investment made with a promised returns, but the Ponzi schemer uses new investor money to pay the old investors which is bad. If you want to learn more about Ponzi schemes, go read about Bernie Madoff. Multi-level marking is a different kind of beast. The phrase represents a more legitimate marketing strategy, one that’s tied to an actual product like Avon cosmetics. Fraudsters might also describe their pyramid scheme as a multi-level marketing opportunity in order to trick you.

You do not want to get involved in a pyramid scheme, no matter who tries to rope you in or how much money they say you can make. The reason is simple: They’re a scam! Let’s say that again together: Pyramid schemes are scams! Basic mathematical principles show that all pyramid schemes will eventually fail, since the growth model is unsustainable, and while people at the top of the pyramid might make a few bucks, the vast majority of people who buy into the scam will lose money. Here’s a simple chart:

So now that we’ve gotten definitions out of the way, let’s talk about some simple strategies that you can use to avoid getting involved in a pyramid scheme. “Don’t be an idiot,” you might think, is an obvious one. But sometimes when we’re talking to old friends or distant relatives, our judgement can become clouded by nostalgia or, heaven forbid, some weird sense of loyalty.

Advertisement

Like I said before, I’ve had close encounters pyramid schemes at least three times in my life. The number is actually higher depending on what you call an encounter, but for the purposes of this post, let’s just talk about the three major brushes with fraud. My first experience was honestly more second-hand, while the latest two felt like someone I trusted reached into my butt pocket and tried to nick my wallet. What should you do in these situations? There are three slightly different methods, I’d recommend.

The Good Principles Method

My dad loves a good deal. He was an early member of Sam’s Club, where he loved to sift though the pile of damaged goods on clearance for maximum value. When I was a kid, he financed a couple family vacations by signing up for timeshare presentations. Timeshares are often compared to pyramid schemes, since they’re often scams. However, my dad felt sat through the high-pressure sales pitches because he wanted the free hotel rooms and Disney World tickets the timeshare companies would give you if you’d tour their properties.

Advertisement

Around the time of our timeshare vacations, I remember my dad getting invited to join some new buyers club. It sounded a bit like Sam’s Club, except they wanted him to recruit new members in order to get better deals. (In fact, one of his friends had talked him into sitting through the sales pitch.) Our whole family went down to a showroom for the presentation, and within five minutes, my dad had figured out the scam. “This is a pyramid scheme,” he whispered to my mom. “We’re not interested.”

Then we stood up and left immediately, as the salesperson tried to tell us we could win a car. If I recall correctly, we went on to enjoy a nice dinner at the Olive Garden. There, my dad explained to my sister and me how pyramid schemes worked. We were probably seven and eight, respectively, but I still remember his advice: If it seems like a scam, it probably is, so don’t even think about it. I’ve held on to this principle since then.

The Common Sense Method

A decade later, I found myself in my high school soccer coach’s living room with two of my best friends. We’d been invited to dinner, and afterwards, coach said he wanted to talk to us about an exciting business opportunity. The hour that followed was basically an exhausting and tortuous version from that scene in Garden State:

The opportunity, as it turns out, reminded me of the one my dad had said no to many years before. It was another buyers club, except instead of dealing with a showroom and a catalog, everything was online. You’d “own” a store and talk your friends into opening stores of their own, so that you could leech off their sales. We watched a video that involved a fat, tan man on a yacht explaining how easy it was to get rich. In other words, a classic pyramid scheme.

Advertisement

It probably goes without saying that this whole affair was highly inappropriate. Our soccer coach was also one of our teachers, and my friends later learned that he’d been cycling through the whole roster in an attempt to make money off of teenagers. That night, when the weird presentation was over, we didn’t really understand what the coach was pitching us, but it seem like common sense that we shouldn’t go business with our soccer coach, regardless of what he was selling. “It sounds like a pyramid scheme,” I said as we walked to our cars. “Let’s never talk about this again.”

The Run-for-the-Door Method

This one’s easy: just never get involved, not even a single conversation. Don’t go to the sales pitch. Don’t take the phone call. Don’t waste your time.

Advertisement

A few weeks ago, an old friend called me from Tennessee, where I grew up. We hadn’t kept in touch, so it was a surprise to hear from him. In our brief chat, he asked me how I was doing and what I was doing. Then the keywords started to appear, words like “exciting” and “business” and “opportunity.” He wanted to send me a brief video about a product he knew I would love, one that I should definitely share with people I knew in New York. He pressured me into agreeing on a follow up call so that we could talk about the details. “This sounds like a pyramid scheme,” I thought to myself.

I gave my old a fake email address and ignored his calls for a couple weeks, until they stopped. Shitty way to treat a friend, right? No, it’s shitty to fall victim to fraudulent business pursuits and then try to rope your friends and relatives into it. Don’t feel bad about running for the door. It’s the best thing for both of you.