Pyramid schemes

The scam

These illegal and risky scams make money by recruiting people to put money into a fraudulent money-making venture rather than by selling a legitimate product or service. These schemes inevitably collapse and result in you losing your money.


Look up. Look waaaaaayyyy up. This is the graphic representation of a pyramid

scheme… an illegal scheme in which you (and often

your friends and family) become involved as the building blocks of something that is

supposed to make you a fortune… by getting you to commit your hard-earned

cash for the promise of a big return. And not only do you have to commit your money…

you are expected – actually, you are expected to recruit the people around you as well,

getting them to put money into the scheme. Pyramid schemes, and their cousin, the Ponzi

Scheme, have been around for along time, and they’re

usually designed to look pretty slick. But there’s a problem. They’re built on

lies, deception and… well, a lot of hot air.

The scammers make their money by taking money from people they recruit…

people like you, and your cousin Elmo… and they don’t care when the pyramid falls

down, because… they’re history. Pyramid schemes and Ponzi schemes are illegal.

Protect yourself by asking the tough questions: If I’m not selling a genuine product or

service, is participation in this activity legitmate and legal?

If you do have to buy something in order to join a plan,

if you have to buy very large quantities of products, or if you can't return them,

you may be dealing with an illegal pyramid scheme.

Investing and being part of small businesses is perfectly fine, but you MUST do your research,

and you MUST stay away from high-pressure sales tactics, especially at meetings and

seminars. What goes up… is almost certainly going

to come tumbling down. A message from the Competition Bureau of Canada…

and the Little Black Book of Scams.

Video length: 2 minutes, 05 seconds

How it works

The scammers lure people by promising big financial returns for little cost. People are often persuaded to join by family members or friends, who may not even know that what they are doing is illegal.

In a typical pyramid scheme, you are encouraged to pay a large membership fee to participate. The only way for you to recover any money is to convince other people to join, but there is no guarantee you will get any money back.

In Canada, it is a crime to promote or participate in pyramid schemes.

How to spot it

Pyramid selling focuses on generating profits by recruiting others and not from the sale of products. Even when these schemes offer products, the products may have very little value or there are few incentives for their sale.

Often, the scammers will be unable to clearly explain how their business works, or they will say the returns are guaranteed or risk-free. They may use high-pressure tactics and try to make you feel foolish if you don’t invest. They may tell you to keep everything secret.

Protect yourself

  • Ask yourself: Does this seem too good to be true? Just because someone you trust, even a family member, is involved doesn’t mean it’s not a scam (they may not even know that what they are doing is illegal).
  • Never commit to something at high-pressure meetings or seminars.
  • Don’t make any decisions without doing some research on the offer being made, and getting independent sales advice.
  • Watch out for compensation offers that focus on recruiting new members.

There are legitimate companies that use multi-level marketing techniques (also known as network marketing). These are legal operations where people make commission income by selling real products and by recruiting more salespeople to work for them. These companies must disclose how much a typical participant makes. They should also have reasonable buy-back or refund policies. In addition, legitimate businesses do not compensate members of the plan for simply recruiting new participants, rather members earn a percentage of the commissions earned by the participants they recruit.

Further reading