Pyramid Scheme Related Fraud
Latest Case Scenario
Fraudsters set up a company and persuade victims to participate in online bidding scheme launched by the company by paying about HK$10,000 for “bid points”, which were used for bidding luxury goods on the company’s website at cheaper price. At the same time, participants could earn bonus by recruiting new participants. The more new participants they recruited as their downliners, the more bonuses they could earn. However, no participants had so far successfully bid any goods, or received their bonuses. They turned up at the office of the company but found it vacated.
How does it work?
(1) Pyramid Selling Scheme
Fraudsters set up a company and purportedly sell actual products, bid points or coins. They lure victims into purchasing multiple accounts and recruiting others to join the scheme for more rewards. Fraudsters may also make use of multi-level marketing plan with exaggerated income from recruiting downliners to persuade new participants to spend large amount of money for goods in order to get the right of developing their downlines. When the new participants are short of money to make the purchase, fraudsters will induce them to obtain loans from financial institutions. Some fraudsters may even persuade the new participants to use false documents, such as proof of employment, to apply for loan.
As to multi-level marketing, usually participants are not required to pay huge amount of participation fee and the income is based on the sales of products. Moreover, the marketing plan can be sustainable. As to Pyramid Scheme, participation fees are high and the main source of income is the recruitment of new participants. The sales of products are not a concern and there is usually no refund policy or the terms of refund are harsh. The Pyramid Scheme only focuses on short-term earnings.
(2) Ponzi Scheme
Fraudsters organize investment seminars for “high-yield investment programs”, “hedge futures” or “offshore investment” and boast extraordinary returns. Victims gain profits initially thus carry on to invest more money, or to encourage friends and relatives to join. Fraudsters flee with victims’ funds thereafter and there is neither genuine underlying business nor investment plan in reality.
What is our advice?
- Beware of the required participation fee, for the purchase of products or service, or joining the multi-level marketing sales scheme;
- Avoid using loan or overdraft to join any multi-level marketing sales scheme;
- Be cautious when being persuaded not to discuss with friends or family members with regard to the scheme;
- Pay attention to friends or family members who might have trapped by the Pyramid Schemes or Ponzi Schemes; and
- Remind friends or relatives on the Mainland that they may breach the Mainland laws when they recruit downliners thereat for multi-layered marketing plan they joined in Hong Kong.