Pyramid schemes

A pyramid scheme is a form of investment scam that offers you quick and easy money in return for cash. It offers you an opportunity to buy into a scheme or market a particular product. You then make money by recruiting others into the scheme rather than selling the product itself.

There would need to be an endless supply of new people for every participant to make money. In reality, the number of potential new investors is limited. This means it gets harder for new people joining the scheme to recruit others so their chances of losing money increase. Those at the bottom of the pyramid who are last in will lose all of their money when the scheme falls apart.

What to do if you spot a potential pyramid scheme

If you are invited to join any kind of scheme you think is a Pyramid scheme, you should tell us about it and contact your local Garda station. If you have already invested, it is unlikely you will get your money back.

A Ponzi scheme is form of investment scam. The money victims ‘invest’ is used to pay the returns to people who have already invested. Because of this, early investors sometimes make returns and, believing it is legitimate, are encouraged to keep investing. Money goes round and round without any real investment. This continues as new investors join, but once the scheme runs out of new investors, it collapses, and everyone loses their money.

Ponzi scheme promotors promise a high profit at little to no risk. Investors will often encourage their friends and family to invest. Ponzi schemes typically pretend to be financial service products like equities, bonds, shares or cryptocurrency.

Warning signs of a Ponzi scheme

There are some giveaway signs that it’s a Ponzi scheme:

• rate of return promised is suspiciously high – as much as 10%
• someone you trust is trying to get you to join and not miss an opportunity
• the person trying to persuade you invested in the scheme and got high returns already

How to avoid a Ponzi scheme

It’s essential to know the exact details of what you’re being asked to invest in. Don’t just go by the word of a trusted friend or person known to you. Remember the golden rule, if it seems too good to be true, it probably is.

Always research the company yourself independently to verify that its legitimate. Remember that a professional looking website does not necessarily mean the company is legitimate.

What to do if you spot a Ponzi scheme

If you are invited to join any kind of scheme you think is a Ponzi scheme, you should tell us about it and contact your local Garda station.

The Central Bank of Ireland also has further advice on avoiding scams and unauthorised activity.

In multi-level or network marketing, individuals sell products to the public. They do this usually by word of mouth or direct sales and earn commission. The commission made is not just on their own sales, but also on sales made by the people they recruit to the scheme.

A legitimate MLM scheme uses the profits from sales to pay bonuses to recruiters, but not all MLM schemes are legitimate. If the money made is based on your sales to your customers, it may be legitimate. If the money made is based on the number of people you recruit and what you sell to them, it’s probably not. It could be a type of pyramid scheme and therefore illegal.

What to watch out for

There are certain clues you need to be alert for:

• your income from the scheme is based on introducing other people to the scheme rather than selling a product or service
• you are told about the scheme by word of mouth or personal invitation rather than it being openly advertised
• there is limited information available about the scheme