Colin Parker of Kangs Solicitors explains the nature of one particular fraud, namely Pyramid Fraud Schemes.
What is a Pyramid Scheme?
Those unaware of the nature of a pyramid fraud need to be aware that it does not relate to the manner in which, historically, an Egyptian Pharaoh may have been ripped off over labour or material costs, or, in more modern times, the excessive price that may be extracted from a tourist for a carved wooden camel which turns out to be a smart piece of Taiwan plastic.
The saying goes that ‘If it is too good to be true, then it probably is’ and there is no more glowing illustration than pyramid fraud.
Every now and then a new pyramid fraud scam will emerge and which always leaves countless people out of pocket, with some, totally destitute.
Whilst each individual scam is catastrophic in its effects, it seems to be the case that, as they appear from time to time in different parts of the country, people generally remain unwary and fail to understand them.
Pyramid schemes have existed for at least a century, they appear in different guises, but all have one common feature, they are illegal.
Their attraction is the lure of an unrealistic offer of a very substantial return on an individual’s ‘investment’ for, seemingly, little effort.
How does a Pyramid Scheme work?
In a typical Pyramid Scheme, in simple terms, participants pay what is effectively an entrance fee, sometimes misguidedly called their ‘investment money’, in order to join what is generally called ‘the scheme’ or ‘the game’.
Once the ‘investment money’ is paid into a scheme, the person who occupies the lowest rung of ‘a ladder’, who may well have been the person who encouraged the ‘investor’ to participate, moves upwards to the next rung of that ladder thereby making room for the new ‘investor’ on the bottom rung.
Upon entry to ‘the scheme’ or ‘the game’, an individual, in addition to the payment of money, promises to introduce a minimum number of other people to participate and who, in turn, have to pay a similar amount of money by way of ‘investment’ to engage in the activity.
Upon payment of their ‘investment money’, those new ‘investors’, less attractively known by those already locked into the scheme as ‘newbies’, in turn take their step onto the lowest rung of a ladder with the expectation of progression upwards as further ‘newbies’ are attracted.
There can be various permutations as to whom the ‘investment money’ is paid and how participants move up a ladder.
Each ladder narrows in width from the base upwards and a diagram will produce the shape of a pyramid and hence the title, Pyramid Fraud.
Eventually, one of the few participants lucky enough to benefit from the scheme reaches the summit and at that point the ‘payout’ of the accumulated funds within that pyramid is achieved.
That fortunate person, having grabbed the money, is then removed from the ladder and every person on the rungs beneath moves upwards towards the top carrying the expectation of their own ‘payout’, should they be lucky enough to reach the top. MOST do not do so.
Only the very few lucky participants involved at the outset of a scheme achieve this ambition and the vast majority do not and simply lose their ‘investment’
Accordingly, a scheme in this format will simply involve new members being attracted, new money being introduced and ‘investors’ moving upwards towards the top of a ladder until such time as the scheme runs out of new ‘investors’ entering on the bottom rung to keep everyone on that ladder moving up towards the top.
At the outset it all seems too easy to an unsuspecting individual who is being urged by friends and relatives to participate. It is.
A case involving Pyramid Fraud conducted by Kangs Solicitors
In a pyramid scheme conducted in Bristol, the offer was that for an initial payment of £3,000 a participant would receive £24,000 in very short order.
It all seemed so simple for those engaging in the scheme at a very early stage and the lure of quick money drew in hordes of ‘investors’.
Some unlucky individuals borrowed substantial funds from banks and raided their credit cards to the limit in order to join the frenzy and not miss the opportunity of quick money for nothing.
When a scheme is new to a particular geographical location and in the initial stages of growth there is a very reasonable chance of securing a quick ‘payout’ to those very early participants, as it is the sort of scheme that excites people and attracts a lot of attention.
However, every Pyramid scheme is doomed to failure.
The reason for the inevitable failure of every such scheme is extremely simple. Logistically, it is impossible for there ever to be enough available ‘investors’ to enable the scam to keep growing and it has been calculated that 90.4% of all participants lose their money in pyramid schemes of this nature.
The Bristol scheme expanded at an alarming rate and there were scores of ladders operating at any one time with the result that there were in the region of 10,000 participants with at least £20 million exchanging hands.
Needless to say the pyramid scheme failed when insufficient new members could be found.
Whilst schemes are frequently started by individuals who know exactly what they are doing and, generally, are able to substantially profit in the short term, innocent people can become drawn into the administration and promotion of such schemes on the back of the excitement of ‘earning a quick buck’.
Without realising it, innocent people who think they are simply participating in an exciting money making ‘game’ are drawn into activity which is potentially illegal and presents the prospect of prosecution and prison when the scheme inevitably comes to the attention of the authorities.
Naïve ‘investors’ see many other ‘innocent and respectable’ people participating and simply give no thought to the possibility that serious illegal conduct may be taking place.
The Bristol pyramid scheme mentioned above resulted in two separate trials each running for twenty weeks before Bristol Crown Court.
Of the eleven defendants, only our client was acquitted by the juries at those trials.
Contact Us | Pyramid Fraud Scheme Solicitors
At Kangs Solicitors we are in the unique position of providing assistance to anyone caught up in such a pyramid scheme.
Should you become involved in or be accused of any pyramid fraud activity and require any guidance and advice then please do not hesitate to contact Hamraj Kang or Colin Parker who will be pleased to meet you for an initial free consultation.