Remaining Wary of Schemes in the Great Recession
Formal Resources Don't Substitute for Old Fashioned Common Sense
Financier Bernard Madoff's guilty plea may have ended one of the worst frauds in U.S. history, but it only underscores the need to remain wary of get rich quick schemes.
According to a Feb. 27 article in PRN Newswire, the National Consumers League released the findings of an Opinion Research Corporation telephone survey conducted between Feb. 12-15, 2009 and added additional resources at its Web site Fraud.org/pyramids.
Tough Times Mean More Victims
The short story behind the findings is that tough economic times such as an economic downturn many are calling The Great Recession or Depression 2.0 cause those struggling to pay the bills to become desperate. The findings are staggering.
According to the survey, lower income consumers were more likely to mistake pyramid schemes for legitimate business opportunities. The survey defined lower income consumers as people who make less than $35,000 per year, and said their likelihood of becoming victims of such a scheme is 42 percent, compared with 33 percent of the general population. They were also less likely (61 percent; compared to 68 percent of the general population) to identify a pyramid scheme as a scam.
“In a time like this, when many are struggling to make ends meet, some consumers may lower their guard and find themselves considering offers that - under other circumstances - they would rightfully identify as sketchy and high-risk,” said Sally Greenberg, NCL Executive Director.
How to Pick out a Pyramid Scheme
There are legitimate multi-level marketing plans out there, but pyramid schemes and Ponzi schemes may make people wary of even the legitimate strategies. According to the Web site, a legitimate MLM plan focuses on sales of products and services to end-users, not other distributors.
More information is available at another page, www.fraud.org/pyramids/checklist.htm, which lists the National Consumer League's Pyramid Schemes Checklist. If a company asks people to pay a lot of upfront money to participate in a plan and promises easy money or surprisingly high profits, it's likely a pyramid scheme. More important, however, if the company is not a member of the Better Business Bureau and does not have information readily available, do not get involved with them. It's illegal.
Finally, both sources point out that pyramid schemes eventually collapse. Sometimes, they're in the news for a day or two. In Madoff's case, his name has become synonymous with swindlers, as everyone from Ian Thiermann, a 90-year-old Ben Lomond, Calif. man forced to return to work after losing his life savings when Madoff's scheme fell apart, to actor Kevin Bacon lost money.
Common Sense
One piece of advice that the National Consumer League includes on its checklist is one people have likely heard from their parents: trust your instincts. If it sounds too good to be true and if something doesn't feel right, don't get involved. According to many sources, humans are the only animals who have been taught or trained to ignore their instincts. However, bad feelings in the case of a financial plan that seems to be too good to be true can save someone from making a major mistake.
Pyramid schemes, Ponzi schemes and other acts of financial deception aren't going to go away. But, learning a little bit about how they work and how to pick them out can go a long way toward preventing them from claiming someone as their victim.
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