Too good to be true: Pyramid schemes doing the rounds

With a number of fraudulent schemes being investigated, the consumer advice is to always be on your guard
Too good to be true: Pyramid schemes doing the rounds

If it seems too good to be true, then it probably is.

The Competition and Consumer Protection Commission (CCPC) announced last week that it had carried out searches of two properties in Donegal as part of an investigation into a potential pyramid scheme in the health and wellness sector.

Pyramid schemes are fraudulent marketing and investment arrangements in which you’re offered an opportunity to market a particular product. You know it’s a pyramid scheme when the profit comes not through the sale of anything but through the recruitment of others into the scheme.

This is the second time this year that the CCPC has warned consumers about pyramid schemes. Back in March, the consumer watchdog said that it had been fielding multiple calls about a potentially fraudulent scheme that had been doing the rounds on social media.

People were invited to ‘invest’ €150 in the scheme and told that once they recruited more people, they would move up to the ‘next tier’. This supposedly continued until the participant reached the centre, where they would make a return on their investment. That scheme, which targeted young people and students, used the image of a flower to illustrate how it worked.

Both it and the alleged scheme currently under investigation in the northwest work by offering individuals the opportunity to buy in. When you do this, your money goes to those above you, and you recoup your money by recruiting others into the scheme. In theory, the further up the pyramid you go, the more money you get.

As is the case in all pyramid schemes, however, the supply of potential investors runs out and the whole thing collapses. Almost everyone loses their money. This is why pyramid schemes are illegal and those who knowingly participate in them are liable for prosecution.

Under the Consumer Protection Act 2007, it is an offence for anyone to establish, operate, promote or knowingly participate in such a scheme. If convicted, you could face a fine of up to €150,000 or five years in prison or both.

The CCPC has the power to carry out unannounced searches of businesses and private homes on foot of search warrants issued by the District Court. The aim of these searches is to uncover evidence.

On Tuesday, November 2, two properties were searched under warrant by officers from the CCPC and the Food Safety Authority of Ireland (FSAI), who were separately verifying compliance with the requirements of food law. The CCPC and FSAI were supported by local members of An Garda Síochána as well as the Garda National Economic Crime Bureau.

Here’s an example the CCPC uses to demonstrate how a pyramid scheme typically works.

“Darren is recruited into a pyramid scheme by an old school friend, along with nine other people. They each invest €1,000 to join and find out after they have handed the money over that the only way to get it back it is for each of them to recruit 10 more people. Darren and the other nine new recruits would need to convince no fewer than one hundred other people to take part, and these hundred would need to convince 1,000 people, and so on. This very quickly becomes mathematically impossible to achieve and when the pool of potential people runs out, the pyramid collapses and those who have joined most recently lose everything.”

Despite the fact that there are regular public awareness campaigns warning against them, pyramid schemes have proved remarkably resilient and keep cropping up in one form or another every couple of years. They give every appearance of being failsafe — for the uninitiated at least, and they’re particularly insidious because they rely on an existing network of family and friends. When they fall apart — and they all fall apart — they wreck as many relationships as nest eggs.

Part of the reason our laws are so strict in this area is that we were hit hard by a particularly nasty scheme back in 2006.

The Liberty Chart System and Speedball schemes swept Cork, Kerry, and Clare in the early part of that year as ‘investors’ were persuaded to part with large sums of money in the hope of securing many multiples of their stake down the line.

Gardaí who investigated the scams estimated that those at the bottom of the pyramid lost about €20m in total. Individual investors handed up to €10,000 each to organisers, with the promise they would receive €80,000 in profits.

Pyramid schemes are related to multi-level marketing (MLM) schemes, which you also need to beware of. These are also known as network or matrix marketing schemes.

They work by selling products or services through a network of distributors. Critically however, you get incentives for recruiting other people into the scheme.

As the CCPC explains, in multi-level or network marketing, individuals sell products to the public, often by word of mouth and direct sales. So once again, you’re talking about tapping into your network of family and friends. Typically, individuals earn commissions, not only for their own sales, but also on sales made by the people they recruit to the scheme.

Some MLM schemes are legitimate, it’s true. But many are not. If the money you make is based on your sales to your customers, it may be legitimate. If the money you make is based on the number of people you recruit and what you sell to them, it’s probably not.

Be sceptical if you hear about money-making schemes through word of mouth or personal invitation rather than through open advertisement. If the scheme is not legitimate, its organisers will try and keep it out of mainstream media in order not to garner attention from those who could readily debunk it. And that’s why you’re far more likely to hear about an MLM scheme, or indeed any pyramid scheme through people you know, and increasingly through social media.

If promoters give you the hard sell — waxing lyrical about the vast sums you’ll make — listen to those alarm bells. Take the time to do some research on the company or scheme.

Be wary too if information is provided at a meeting, but there is little, if any, material you can take home and study. Never give in to a slick presentation and decide to invest there and then. And the standard advice always, always applies. If it sounds too good to be true, it is too good to be true.

The CCPC says that if you are approached to join any kind of pyramid promotional scheme, contact them immediately through the helpline on 01 402 5555 or by going online to

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