Pattaya Daily News

01 January 2008 :: 11:01:13 am 22860

Thailand‘s Dsi Warns Public On Pyramid Schemes

BANGKOK, Dec 30 -- Thailand‘s Department of Special Investigation (DSI) has warned the public against investing in pyramid schemes after finding scams through more than 100 international websites which could cause losses as much as Bt5 billion to investors per website, a ranking Thai officer said today.
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Col. Piyawat Kingket, chief of the DSI’s Bureau for Special Criminal Cases, said because of the economic slowdown and low interest rates in 2007, he believed more people would consider investing in pyramid schemes in 2008.

Several pyramid scheme operators closed their businesses in late 2007 and escaped with investors’ money, he said. The DSI had found there were now nearly 100 websites luring people to invest money in pyramid schemes.

Col. Piyawat urged people to be aware of such offerings, which promised investors a daily return and high yields. Pyramid schemes are illegal in several countries, including Thailand.

The DSI was now closely monitoring the activities of one website of which the operator was suspected of cheating people, he said. The operator had mobilized funds through the website which was jointly conducted with foreigners but registered in Thailand.

In 2003, an internet-based ?pyramid scam? was uncovered by the US Federal Trade Commission (FTC), in which customers would pay a registration fee to join a program and purchase a package which included an internet ?mall? and related goods and services. The FTC’s complaint stated the company behind the website assured consumers who purchased the package would earn significant commissions for every website sold.

The FTC alleged the company deceptively represented that consumers who participated in the scheme would earn substantial income, when in fact most consumers lost money in the operation.


Notes:
A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered. It has been known to come under many guises.

Pyramid schemes are illegal in many countries, including the United States, Great Britain, France, Canada, Malaysia, Norway, Australia and New Zealand.  These types of schemes have existed for at least a century.

Internet

In 2003, an internet-based “pyramid scam? was uncovered by the United States Federal Trade Commission (FTC), where customers would pay a registration fee to join a program and purchase a package which included Internet mall and related goods and services. The FTC’s complaint states that the company assured consumers who purchased the package would allow them to earn significant commissions for every WebSuite sold.

The FTC alleged that the company deceptively represented that consumers who participated in their scheme would earn substantial income, when in fact most consumers lost money in the operation, and that the defendants provided deceptive marketing material to affiliates – providing them with the means to deceive others; and finally, the company failed to disclose that a substantial percentage of participants would lose money, and that the scheme was actually an illegal pyramid.

Identifying features

The distinguishing feature of these schemes is the fact that the product being sold has little to no intrinsic value of its own or is sold at a price out of line with its fair market value. Examples include “products” such as brochures, cassette tapes or systems which merely explain to the purchaser how to enroll new members, or the purchasing of name and address lists of future prospects. The costs for these “products” can range up into the hundreds or thousands of dollars. A common Internet version involves the sale of documents entitled “How to make $1 million on the Internet” and the like. The result is that only a person enrolled in the scheme would buy it and the only way to make money is to recruit more and more people below that person also paying more than they should. This extra amount paid for the product is then used to fund the pyramid scheme. In effect, the scheme ends up paying for new recruits through their overpriced purchases rather than an initial “signup” fee.

The key identifiers of a pyramid scheme include the following:
1. A highly excited sales pitch.
2. Little to no information offered about the company unless an investor purchases the products and becomes a participant.
3. Vaguely phrased promises of limitless income potential.
4. No product, or a product being sold at a price ridiculously in excess of its real market value. As with the company, the product is vaguely described.
5. An income stream that chiefly depends on the commissions earned by enrolling new members or the purchase by members of products for their own use rather than sales to customers who are not participants in the scheme.
6. A tendency for only the early investors/joiners to make any real income.
7. Assurances that it is perfectly legal to participate.

The key distinction between these schemes and legitimate MLM businesses is that in the latter cases a meaningful income can be earned solely from the sales of the associated product or service to customers who are not themselves enrolled in the scheme. While some of these MLM businesses also offer commissions from recruiting new members, this is not essential to successful operation of the business by any individual member. Nor does the absence of payment for recruiting mean that an MLM is not a cover for a pyramid scheme. The distinguishing characteristic is whether the money in the scheme comes primarily from the participants themselves (pyramid scheme) or from sales of products or services to customers who aren’t participants in the scheme (legitimate MLM).

Market saturation
Over 90% of the people who get involved in pyramid schemes never recoup their initial investment.

The people on the bottom level of the pyramid, no matter how shallow or deep it goes, will always lose their money. It is easy to see that the number in the bottom level of the pyramid always exceeds the total of all those in the levels above no matter how many levels there are. If each level must recruit six more below them, the ratio of losers to winners is close to 5 to 1 – 84% of all investors will lose their money. The pyramid in reality would not be perfectly balanced and some members might be able to partially fill their number of recruits, but the same principles apply.

Reporter : Methawee   Photo : Internet   Category : Business News

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