Avoid Being Scammed!

Multi-Level Markets (MLMs) and Pyramid Schemes

You may wonder why I lumped these into the same category. MLMs are legal and Pyramid Schemes are completely illegal. The problem with MLMs is that they have the same structure as a pyramid scheme and therefore, people on the bottom make a lot less money than people on the top. You can make money in either an MLM or a pyramid scheme, but it is not as easy as your recruiters will lead you to believe. It is my opinion that most MLMs will cost you rather than make you money and are, therefore, scams.

An MLM generates most of its profit through product sales, not recruitment. If you decide to involve yourself in a legal MLM, please realize that there is no such thing as easy money and that all MLMs require you to be a really good salesperson in order to succeed. Do not let anyone convince you of the contrary—MLM products are not easy to sell, not everyone can do it. If you truly are an excellent salesperson, it is likely that you can make even more money working for a regular company. The other disadvantage of being involved in an MLM is that they generally require you to purchase their products which may or may not be superior to what is available at your local retailer and are most definitely more expensive than what is available at your local retailer.

A Pyramid scheme is the same concept as a chain letter. Both are totally illegal. Pyramid schemes make their money solely based on recruiting new people, but they often disguise this fact by offering a product. I will give you an example by citing a pyramid scheme that I once unwittingly involved myself in. The internet was still new and the company promised that consumers would be able to make very inexpensive purchases online by using your code and if you recruited others you would get a kickback from the people they signed up too. The disadvantage? Joining cost over $800 and most of the money went to the people in your upline. At the time, I was not aware of pyramid schemes and I joined because of the fabulous promises of big checks and even quit my job thinking I could work just part-time at this new “turn-key” company and make a small fortune. Unfortunately, it was very difficult to make any money at all and I later discovered that the founder of the company had pulled this scam many other times in several other states.

Internet Scams

With so many purchases being made online now, how do you know who you can trust? How do you know a product actually exists, that the person will actually ship it to you, or that when you get it in the mail it will be in the condition promised? Some people avoid online purchases altogether, but often because of that they miss out on truly good prices on the things they want. Here are a few tips to help you do business with only honest companies.

• Websites like pricegrabber.com, ebay.com, and amazon.com have reviews available on both the product that is for sale and the seller who is selling the product. Make sure to read the reviews to make sure that the seller is someone who you can trust.

• If you are unsure of any product you are going to buy, check out www.epinions.com or a similar website and see what other people think of the product you are considering.

• Never give up money on a large-ticket item via wire transfer, check, or cashier’s check unless you already have the product in-hand and are satisfied with it. Be very wary of someone who will not accept credit cards. Paypal makes it easy for anyone to accept credit cards at a nominal fee.

• If a review is not available for a seller, make sure they are listed with the BBB and have a satisfactory rating.

• If no information is available about the seller, do not send any money that you can not afford to lose.

Investing Scams are often offered by telephone, mail, friend, or associate. These scams always take the same form. There is an exclusive opportunity for you to make very large returns on comparatively small amounts of money with little or no risk. Please know that there is NO SUCH THING as fantastic returns at no or low risk! In today’s interest rate environment, be very wary of anyone promising you returns of over 5%. Here are a few examples that I have heard about over the years.

• Investment X is what banks secretly invest their money in! They really don’t want you to know, because they are earning 50% returns and if you knew about it, the banks realize that you wouldn’t keep your money in savings anymore.

• Investment Y is an IPO, and usually only really rich people can invest in IPOs, but I am going to make an exception for you because you know me. If you buy shares of this company right now at $5.00 per share, after the company goes public, the shares will be worth at least $20.00 each!

• Investment Z is a real-estate investment in property in (another country). They need money to build, but when the project is done, they will be paying out 100% interest! If you invest $30,000 today, you will have $60,000 next year!!

A Nigerian Scam generally comes to you via email and promises huge returns in exchange for a small “favor”. The scenario is that someone (often with your same last name) has a huge amount of money in Nigeria and needs to move it to the US. Some problem prevents him from doing it himself and he needs your help. As an incentive, he promises you a very large amount of money for you to keep. If you fall for the story, you will wire him money and then maybe even more money and never see a dime of it back.

How do you avoid becoming the victim of a scam?

• Research the company you are dealing with on the Better Business Bureau at www.bbb.com . Make sure to look the company up on the BBB’s website and not just look at the company’s website. Many fraudulent companies are now displaying the BBB logo to gain trust, but are not actual members of the BBB. The BBB also often has descriptions of recent scams on its website that can help you avoid getting involved.

• Be very wary of companies that are difficult to get a hold of or do not give telephone numbers for contacting them.

• Check with www.snopes.com to see if the email you just got is for real or just another trick.

• Do not do business with any questionable company by wire-transfer, cash, cashier’s check or even check. After they get your money by any of these methods, it is gone. Do your transactions by credit card so you can dispute it if anything goes wrong.

• Never buy an investment over the phone or from a door-to-door salesperson.

• Never give your bank account information or social security number to anyone who you don’t trust 100%.

• Never buy investments from anyone but a licensed investment representative. You can find them in many banks and all investment brokerage firms. You can even check to see if your investment representative has had any complaints against them by going to The National Association of Securities Dealers at www.nasdr.com or by calling 1-800-289-9999. That will let you know who the broker is currently working for, who they have worked for in the past, and whether there are any complaints against them. You should also be wary of doing business with any broker who has worked for too many different investment firms.

• Always keep in mind that “if it sounds too good to be true, it probably is”.