Pyramid schemes
How can you recognise and protect yourself from pyramid schemes?
Pyramid and Ponzi schemes promise easy money and high returns by relying on new recruits rather than real products or genuine investment activity. They are illegal in Ireland and always collapse, leaving most people who take part with financial losses. Be cautious of schemes that pressure you to recruit others or sound too good to be true.
If you spot a suspicious scheme, report it to the CCPC, your local Garda station, or the Central Bank of Ireland. For tips on avoiding scams, visit FraudSMART or get independent financial advice before investing.
Pyramid schemes are illegal
Under Section 65 of the Consumer Protection Act 2007, it is illegal in Ireland to establish, operate, promote or knowingly take part in a pyramid scheme. If convicted, an operator, promoter or participant in a pyramid scheme could be liable to a fine of up to €150,000 or up to five years’ imprisonment or both.
What are pyramid schemes and how do they work?
A pyramid scheme is a form of investment scam that offers quick and easy money in return for cash. You make money by recruiting others into the scheme, not by selling a product.
Why pyramid schemes always collapse
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 should you 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.
What are Ponzi schemes and how do they work?
A Ponzi scheme is a form of investment scam where victims’ money is used to pay returns to earlier investors. Early investors sometimes make returns and are encouraged to keep investing. The scheme collapses when it runs out of new investors.
Warning signs of a Ponzi scheme
There are some giveaway signs that it’s a Ponzi scheme:
• Suspiciously high rate of return promised
• Someone you trust tries to get you to join
• The person persuading you has already invested and got high returns
How to avoid a Ponzi scheme:
• Know the exact details of what you’re being asked to invest in
• Don’t just go by the word of a trusted friend
• Research the company independently
• Remember the golden rule – if it seems too good to be true, it probably is
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.
What is multi-level marketing (MLM) and what should you watch out for?
In multi-level or network marketing, individuals sell products to the public and earn commission on their own sales and those of people they recruit. Legitimate MLM schemes use profits from sales to pay bonuses, but if money is made mainly by recruiting others, it may be a pyramid scheme and illegal.
Clues to watch out for:
• Income is based on introducing others rather than selling a product or service
• Scheme is promoted by word of mouth or personal invitation
• Limited information available about the scheme
Further information:
The Central Bank of Ireland and FraudSMART have tips and information to help you avoid falling victim.
