THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, January 11, 1996 TAG: 9601090061
SECTION: NORFOLK COMPASS PAGE: 06 EDITION: FINAL
TYPE: GUEST VIEWPOINT
SOURCE: BY R.L. GILL SR.
LENGTH: Medium: 78 lines
During these times of company downsizing, right-sizing, high consumer debt and other weighty financial matters, many consumers are looking to make extra money.
But many consumers are unaware that there are scam artists that purposely plan to take their money through complicated pyramid schemes. They are designed to make you believe that you are participating in legitimate business ventures. Only a small investment is required to make huge profits, ``investors'' are told.
Let's look at how it works.
First, a small group of out-of-town scam artists picks an alleged product or service to use as a front for the program. In the past, it has been things such as water purifiers, discount coupons, land purchases, books and buyers clubs. Recently the product of choice has been long-distance telephone service. A paper corporation that has been around awhile or a new start-up company is put into operation.
Great effort is made to register the company with organizations such as the Better Business Bureau, Chamber of Commerce, and Dun and Bradstreet so that the company has a supposed good record. In many instances this is done before anything is ever marketed. Also, many of these programs use lawyers who have had past ethical and legal problems to help set up the scam.
Once the program is registered, usually in a state that requires the least information about details such as the company's officers, program, operations and stockholders, the pyramid promotional scheme is ready to promote.
An advertisement is usually placed in a local newspaper's classified section looking for regional managers, senior sales persons and people who want to make a lot of money. A few people are selected for training by the representative of the alleged company. First, the new local applicants are sold on how much money is being made by selling the company's product or services. Much of this information has not been proven. After convincing the unsuspecting applicant that the product or service is a fast money maker, the marketing plan is next.
This is usually the first point at which the illegal pyramid scheme is introduced to the unsuspecting consumer. After the program is explained and the consumer is told to recruit only a few people, at a small amount of money, the scam is set. The company representative in nearly all cases uses Amway as an example of why the program is not an illegal pyramid. The first independent representatives selected in a local area are set up to start the program in their given area. They do in fact make money. They also start the illegal pyramid program.
The company person leaves the area to the locals to run the pyramid.
However, the alleged company always gets a part of the money generated by the local consumers. This money is usually said to be for something like a joining fee or training. However, most pyramid operators associate their company with another company that might legitimately have a product, but the front company usually has no product or provides no service. The pyramid operators, in many cases, get the up-front money and pass the names of clients to the associated company, which gladly receives the names at no expense.
Now, the local consumers are running a pyramid, and the scam artists are getting money at no risk from the locals who may be breaking the law. Finally, as in all illegal pyramids, they run out of people to recruit. The people who come in last lose their money and the whole pyramid collapses. Consumers now complain to the authorities. The company closes or files for bankruptcy.
These illegal activities are repeated over and over across the country and in Hampton Roads. Consumers should be cautious about participating in illegal pyramids. In Virginia, it is a criminal offense to contrive, prepare, set up, operate, advertise or promote any pyramid promotional scheme.
Remember, illegal pyramid schemes thrive on friendship, lack of correct information and a desire to get rich quick.
For more information, contact the Norfolk Consumer Affairs Office at 664-4888. MEMO: R.L. Gill Sr. is director of the Norfolk Consumer Affairs Office.
KEYWORDS: PYRAMID SCHEME by CNB