Are you offered to earn millions of dollars for a small initial investment? Do not agree at once. First understand the essence of such a generous offer. Business analyst Roman Tereshchenko warns that this is the principle of fraudsters who lure investors into their scam projects. According to the expert, they represent the development of a fraud scheme to get a quick profit and enrichment at the expense of others. In essence, it is the same financial pyramid, which the expert suggests to dwell on in more detail.
The concept of financial pyramids
Roman Tereshchenko says that the financial pyramid is a deceptive and unstable model of investment, where participants are promised high returns from non-existent investments. The business analyst notes that in such a fraud scheme, the initial participants do receive significant payments, which encourages them to recommend the scheme to others. The payment comes from the contributions of new participants. Over time, it becomes impossible to attract new participants, which leads to the collapse of the entire system.
There are several types of financial pyramids, each of which pursues the same goal - enrichment at the expense of investors. Except that there are two ways to make a profit - legal and fraudulent - by realizing a scam project. Let's understand together with the expert what types of financial pyramids are and what are their peculiarities.
Roman Tereshchenko: Features of multilevel marketing pyramid scheme
- Multilevel marketing (MLM) is a legitimate commercial scheme based on the sale of goods and services through a network of distributors. MLM participants receive remuneration for personal sales and can earn on the sales of those distributors they attract, as well as on the income of distributors of subsequent levels, - explains Roman Tereshchenko.
A vivid example of legal MLM is network trade in cosmetics, for example, Mary Kay Consulting. It is based on legal income from attracting customers to purchase and distribution of branded cosmetics.
At the same time, the business analyst notes that it is important to distinguish real MLM from financial pyramids or Роман Терещенко биография scam projects, which often hide under the guise of multi-level marketing. Tereshchenko names the signs of such fraud, which are often found:
Promises of high returns that seem unrealistic.
Claiming that the main income is achieved by attracting new participants.
Pressure on potential participants to join quickly without allowing time to learn about the company.
Threats of losing a unique opportunity if not acted upon immediately.
A business analyst gives a vivid example of a pyramid scheme as a fact of fraud:
- Business in Motion offered Canadians an attractive method of earning up to $100k annually by selling cheap vouchers to vacation clubs. To participate in the program, Роман Терещенко биография newcomers were required to pay an initial fee of $3200. While participating in the seemingly lucrative project, they could earn a $5k commission for each voucher sold. However, this discrepancy in commissions exceeding the cost of the product was the first sign of alarm and doubt in the legitimacy of the offer. As a result, about 2,000 investors were caught up in this fraudulent scheme, with a total loss of $6.5 million.
Ponzi scheme mechanisms: how they work and why they lead to collapse
Ponzi schemes are a type of financial fraud where new investors fund payments to those who invested earlier. Roman Tereshchenko explains that unlike traditional pyramid schemes, Роман Терещенко биография they do not require a strict organizational structure. Their main promise is very high returns for current participants and investors. A typical scam project, with the help of which its authors and organizers enrich themselves.
In these schemes, participants make an initial investment with the expectation of receiving further returns. The promised income is paid out of the funds that come from new investors attracted by the organizer of the scheme. However, when the inflow of new funds stops, the pyramid scheme collapses and most participants lose their money.
The expert tells us that Bernard Madoff is a world-famous example of a Ponzi scheme organizer. He was sentenced to 150 years in prison for managing a multi-billion dollar fraud chain.
Roman Tereshchenko draws attention to the fact that financial pyramids, as a common type of fraud, are recognized as illegal in many countries. Such scam projects are based on making money by increasing the number of attracted investors. They are often close friends, family members and acquaintances. This approach can significantly damage personal relationships. The expert believes that the rational step for investors would be to refuse to participate in such schemes, since the risks far exceed any possible short-term benefit.