Don’t be taken in by the tempting offer of a pyramid investment scheme
The number of new investment products being promoted online today are incredibly varied and creative. Sooner or later, it’s easy to see how you might be attracted to an investment opportunity advertised on the web, particularly if it’s promoted by a friend or acquaintance. But how do you know if the opportunity is legitimate or if it could be a pyramid scheme?
A TEMPTING OFFER
The scenario seems ideal: many members of your personal network say that they’re about to cash in on a lucrative investment, and they encourage you to invest as well. Once you do, inspirational marketing materials make you think about financial freedom, while polished images illustrate luxury items that you’ve always dreamed of owning. What’s more, you’re promised bonuses if you promote the investment within your network of contacts to recruit others.
If any of this sounds familiar, it’s possible that you’ve been targeted in a pyramid investment scheme. Not only is this practice illegal, but you could lose everything and even face charges for helping to promote the fraud.
WHAT ARE PYRAMID INVESTMENT SCHEMES?
The scheme is a business model that encourages the purchase of large quantities of a product that promises an exceptional performance in a short period of time. You may be asked to pay $20, $100 or even $10,000 in membership fees or to purchase coupons, packs or packages. You are sold these packages as if they were the key to earn a return on the revenue generated by the company.
At the top of the pyramid are the designers of the product; they are the ones who set the rules. It’s often difficult to know who these people are and, in most cases, they live and operate outside of Quebec. Their websites are extremely well designed and compelling, they often have great social media skills, and they share videos and other content explaining the investment system and showcasing its so-called wealthy investors.
But the reality of pyramid investment schemes is very different from the one presented to investors; only the designers of the scheme will make money and investors will most likely lose all the money they’ve invested.
WHEN THE PYRAMID BEGINS TO CRUMBLE
The money you put into the scheme is used to pay other investors and, above all, to line the pockets of the scheme’s designers. Eventually, the pyramid will collapse when recruitment runs out of steam, at which point the promoters may encourage you to reinvest your socalled yield and they’ll often present you with all sorts of reasons to try dissuading you to cash out of the scheme.
Unfortunately, there’s a strong risk that you will never be able to recover the returns you were promised, and you’ll likely lose your initial investment as well. The people you recruited are also likely to lose their money, and may hold you accountable. You could also face charges because promoting such a scheme, as well as profiting from it, is illegal.
“We’ve particularly noted the growing popularity of pyramid schemes involving the sale of new virtual currencies: cryptocurrencies,” said Isabelle Maillette, investigator at the Autorité des marchés financiers (AMF).
In order to lure investors and boost their sales, scheme developers often promote the success of Bitcoin, among other virtual currencies. Investors should beware this new trend; the extreme volatility of the value of Bitcoin is of great concern. Its value is not representative of that of other emerging cryptocurrencies, despite the claims being made by promoters. At least one new cryptocurrency is created almost every day, and they’re often at the heart of contemporary fraudulent schemes. And cryptocurrency payments make it much more difficult to track money, which means if you invest in one, your money may be harder to recover.
THERE IS NO SHORTCUT TO WEALTH
Don’t fall into the trap of advertisements that tout infallible ways to get rich quickly.
“Beware if you’re guaranteed good returns without risk and that you’ll have the life you’ve always dreamed of,” Maillette said. “Make sure you understand the features and risks of the investments that are available to you. Above all, always check that the person or company offering any investment is registered with the AMF.”
For more information, visit the AMF website or contact their Information Centre at 1-877-525-0337.