Pyramids Belong in Egypt

Nearly As Old As the Real Thing, Pyramid Schemes Will Turn Your Dreams to Dust

By Joan E. Lisante
ConsumerAffairs.Com

Oct. 4, 1999

Pyramid Schemes • California Arrests Two who Stole Millions Through Phony Stock Sale • 'Gifting Clubs,' Pyramid Schemes Flourish on Web • Pyramid Scheme Operator Settles FTC Charges • Starting (and Staying) On the Ground Floor • FTC Sets Claim Deadline in SkyBiz.com Settlement • College Students Frequent Targets of Pyramid Schemes • Pyramids Belong in Egypt • New York Obtains Judgment Against Internet Scam • FTC Pursues Internet Mall Pyramid Promoters • Skybiz Victims to Share $20 Million • NY Flattens Pyramid Scheme • New Version, Old Scheme • Gifting Scams Sweep Midwest • FTC Charges Internet Mall Is a Pyramid Scam • Court Halts Trek Alliance Pyramid Scheme

Among the recent complaints to ConsumerAffairs.com was one from Barbara, who thought she was jumping aboard an Internet bullet-train to online riches. Barbara found out about a company called Quixtar, whose home page on the Web features several color pictures of deliriously happy people.

Quixtar invites you to become an "independent business owner" or IBO, making money from private-label products, goods in general merchandise catalogs, and links with major on-line retailers.

As an IBO, you rake in bucks by leading other potential customers to the Web site, and collect a monthly bonus based on clients, members and other IBOs registered with Quixtar. Convince other people to buy stuff or, even better, sign on to start "independent businesses" of their own, and your monthly check expands.

Back to Barbara, who sent in the $100 sign-up fee to become an IBO, then waited for the start-up paperwork and tips to get her launched on a profitable venture. Guess what? She still hasn’t received anything. She did, however, buy into the dream as spelled out on the Web site, inviting people to join "if you need extra income because the world is an uncertain place or you have an important dream."

It does sound tempting: "As an affiliated IBO, you can tap into e-commerce and earn on the purchases of your clients, members, or other IBOs; start and build your own Web-based business, enjoying special privileges; or utilize the Internet by choosing your income options for achieving your dreams."

Enter the United States Federal Trade Commission (FTC), which might think this business belongs in Egypt next to the other tall triangular structures. It has many publications describing the pluses and minuses of what’s commonly called "multi-level," "matrix" or "network" marketing.

The key to this type of marketing plan is that leaders recruit people to go into business, and a large part of the recruits’ business is to convince others to join the business. Revenues are as dependent on bringing another layer of people into the business as they are on the business person’s sale of merchandise.

While we have no evidence placing Quixtar in the "pyramid scheme" category, the FTC has developed several useful advisories for consumers to help them distinguish good Internet business opportunities from bad. Here are some tips to take before logging on with your checkbook in hand:

1) Investigate Internet-related business opportunities as carefully as you would check out any business opportunity. Check earnings claims and talk to others who have purchased the opportunity to see if their experience verifies the claims.

2) Check out the company with your state securities agency, attorney general, local consumer protection agency and the Better Business Bureau where you live and where the company is located. Be sure to check the ever-expanding ConsumerAffairs.Com Rogues Gallery.

3) Avoid plans that offer commission to recruit new distributors. Most legitimate business opportunities depend more on revenue from your own sales.

4) Don’t pay money or sign contracts in a high-pressure situation.

5) Beware of any company which asks you to submit personal financial information online. Some Web sites may ask for your income level, bank account information, Social Security Number and other personal information. Before you consider submitting any of this, visit the site’s privacy policy. There, you should find out what personal information the site collects and how the information is used.

6) Use your intuition to ferret-out questionable "opportunities." It an offer seems too good to be true, it probably is. Don’t let eagerness for extra income cloud your judgment or cause you to act impulsively with your checkbook.

7) A contract "on the Web" can be as binding as one on paper, assuming you understand what you’re agreeing to and "click" on those boxes which state that you understand and accept the terms. If anything is unclear or confusing, log off, ask a knowledgeable person your question, or call the company’s toll-free number.

As Barbara might tell you, it pays to be a bit of a Sherlock Holmes when looking into a new business opportunity. Sherlock managed to make his own money without recruiting anyone but Dr. Watson. So can you.

Joan E. Lisante is an attorney who writes frequently on consumer issues.

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