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Posted on
02 March 2015
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Spot the signs of a pyramid scheme

Written by  Melaina

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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 a 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, here. 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 here

Last modified on 02 March 2015
Melaina

Melaina

Melaina works in communications and marketing for Consumer Protection BC. She is our regular blogger and is always looking for topics of interest to BC consumers.  Feel free to ask a question related to any of our posts by posting a comment!

Comments  

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Dian

02 March 2015
This makes almost all MLM business such AMWAY, Network21, Usana, Primerica are considered fraud?
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Melaina

03 March 2015
Hi Dian -- It depends on whether or not they're breaking the laws found in Sections of the Competition Act (which is overseen by the Competition Bureau). Here's some good information from the Competition Bureau's website that explains Multi-level Marketing Plans and Schemes of Pyramid Selling: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03035.html

As we don't regulate these laws, the best place to go if you have questions about a business's practices/pyram id schemes/MLM would be the Competition Bureau. Hope that helps!
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toolbelt

20 January 2016
Primericas biggest lie is their big earners list. Its actually not only cumulative back to 1977, but cumulative by level. A $1M earner will then also be counted at the $50k and $100k. Its in fine print but most just look at the pretty nummbers which are highly distorted by the cumulative effect. When you rework the numbers without accumulation, only about 5,980 reps have ever earned more than $50k LESS EXPENSES in 38 years, and many never repeated those numbers since.

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