March is Fraud Prevention Month and we’re kicking things off with a post all about pyramid schemes: learn what this fraud is and find out why they can cost you a whole lot more than just money.

While Consumer Protection BC doesn’t oversee scams or frauds, we always want to share important and useful information with consumers on our blog. The content in today’s post comes from the Canadian Anti-Fraud Centre and the Competition Bureau.

So what is a pyramid scheme?

According to the Competition Bureau, a pyramid scheme is when an unsuspecting investor is encouraged to pay large membership fees to participate in a moneymaking venture. The only way for the investor to ever recover money is to convince other people to join (and, thus, part with their money as well). Pyramid schemes make money by recruiting people, rather than by selling legitimate products or services.

What does the law say about pyramid schemes?

In Canada, it is a crime to promote a pyramid scheme or even to participate in one. The Canadian Anti-Fraud Centre says that effective January 1, 1993, Industry Canada made amendments to the Competition Act, Section 55, declaring a multi-level sales procedure as a pyramid if:

  • There is compensation paid for recruiting a new salesperson
  • There is inventory loading, that is, the recruits must purchase an unreasonable quantity of product
  • Purchases are required as a condition of entry (you may, however, be required to pay for a sample kit, but this kit must be at cost)

Check out more fulsome information about pyramid schemes on the Competition Bureau’s website. If you think you might be inadvertently caught in a pyramid scheme, immediately stop participating and contact the Competition Bureau. You could also make a report to the Canadian Anti-Fraud Centre.

We hope this information was helpful!

March is Fraud Prevention Month. While scams and fraud fall outside of the laws that Consumer Protection BC is responsible for, we are sharing the information in this blog post to raise consumer awareness in support of this national initiative. For more information about Fraud Prevention Month, please visit the Competition Bureau’s website.

ADDITIONAL READING:

The case of the family and friends incentive
Watch out for charity scams
A scam warning from Canada Revenue Agency