Home > Resources > ScamWatch > Pyramid Schemes

Alert!

Pyramid Schemes on the rise?

Beware:

A pyramid scheme is an illegal marketing system of selling goods in which the right to sell the goods is sold to new distributors. Each distributor is responsible for recruiting other people in order to recoup their initial investment.

The attraction of the pyramid scheme is that it offers an unusually high rate of the return on the initial investment. Investors are typically advised that they can get a full return on their money by getting two or more 'new' investors to make an investment. The new investors must then get two or more new investors and so it goes on and on.

Promoters fail to mention or deliberately conceal that as the pyramid grows, profit from this system becomes mathematically impossible for other than the initiators of the scheme. Some people will fail to send in their money or recruit the required number of new distributors and inevitably the pyramid will crumble.

Multi-level marketing is a legal marketing system for the distribution of products whereby participants earn money by supplying the products to other participants in the same plan. The difference is that with a pyramid scheme the focus becomes the commissions you could earn just for recruiting new distributors, or generating a sales force and will generally ignore the marketing and selling of the products or services. If it is a legitimate multi-level marketing company, the operators or participants should provide you with fair, reasonable and timely information about the plan.

It is a criminal offence under the Competition Act to:

Pay money for the right to receive compensation for recruiting new participants;

Require a participant to buy specific products before he/she is allowed to join the plan;

Sell unreasonable qualities of the product or products to participants;

Refuse to allow participants to return products on reasonable commercial terms.

Be Wise:

Currently there are a number of illegal pyramid schemes operating in Canada and making their way into Manitoba. These are some tips to help you avoid falling prey to such a scheme.

Be careful. Pyramid schemes can often be disguised as games, chain letters, buying clubs, investment organizations or mail order operations.

Do not pay money or sign contracts in a high-pressure situation. Take time to think over a decision to join and talk it over with others.

Ask about the company and its officers, the product and its potential marketability, start-up fees, and actual earnings of current participants.

Get written copies of all available company literature.

Be cautious about references given by the organization; they could be an accomplice of the promoter.

Avoid any plans that offer commissions for recruiting additional distributors or claim you'll make money through continued growth of your "downline".

Check with the Better Business Bureau about the reliability or reputation of the company before making a final decision.

Remember, it is an offence both under the Criminal Code of Canada, and the Competition Act for anyone to participate in or be a party to any type of illegal pyramid scheme.

If you are a victim of a pyramid selling scheme or have information about one, please report it to the numbers below.

For more information on pyramid schemes and/or fraudulent activity please contact the following organizations:

Winnipeg Police Department: (204) 986-6222
RCMP's Commercial Crimes Unit (204) 983-2000
Industry Canada Competition Bureau: 1-800-348-5358
Better Business Bureau
In Winnipeg (204) 989-9010
Toll-free 1-800-385-3074
Consumers' Association of Canada (Manitoba)
In Winnipeg: (204) 452-2572
Toll-free: 1-888-596-0900

*CAC Manitoba compiles information about scams from various sources, agencies, and publications that are available in our InfoCentre. The issue of ScamWatch was written with the help of information from the Industry Canada website, www.strategis.ic.gc.ca and the Federal Trade Commission's website at www.ftc.gov.