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What is a pyramid scheme?

Investing in businesses and other growth opportunities is a good way for Arkansas residents to diversify their assets and build their wealth as they move toward retirement. As most investors know, however, there are no sure things when it comes to putting one’s money in ever-changing entities. Internal corporate problems, industry fluctuations and even overall market drops can negatively impact the wealth that a person hopes to accumulate through their investment portfolio.

Certain investment opportunities raise red flags for government regulators and federal prosecutors. While multi-level marketing companies are legal and offer assorted business options to those who choose to work for them, pyramid schemes fall into a different category and are illegal. This post will briefly discuss what a pyramid scheme is and how it may differ from legitimate business and investment opportunities.

A pyramid scheme begins when someone is recruited to join a business and pays a fee to access the business’s resources and products. That new recruit then recruits others, and over time, the pyramid of individuals working for the business grows. The problem, however, is that the business itself is not profitable and uses the money from new recruits when paying individuals who want to leave the business, thus collapsing when too many individuals want out of the organization.

Pyramid schemes are criminalized under state law, and legitimate business structures can look very much like them if they are not properly set up. If a business owner is targeted as running a pyramid scheme, they should discuss their charges with an attorney who defends white collar crime clients. Such a professional may be able to help them overcome their legal hurdles to protect their legitimate business.

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