Avoiding the trap: How to identify pyramid schemes

To evade identification as pyramid schemes, many new variations adopt alternative representations such as circles, flower looms, or mandalas. Instead of calling the entrance fee an initial payment, they refer to it as a “gift” that supposedly benefits everyone within the “sacred space.” These pyramid schemes—often labelled as gifting circles, sou-sou, or blessing looms—are illegal and can lead to significant financial harm for unsuspecting participants. Such schemes often employ circular or floral imagery in their marketing to obscure their true nature. However, the characteristics of a pyramid scheme remain evident, and potential victims must learn to look beyond the attractive visuals to recognise the hidden dangers they present. Vigilance and awareness are essential to avoid falling prey to these deceptive operations.
The mechanics of a pyramid scheme
The mechanics of a pyramid scheme hinge on two primary elements: (a) an upfront entry fee or initial payment promising substantial returns in a short time frame, and (b) the necessity to recruit new members. Participants typically ascend through various levels until they reach the top, where they receive their promised ‘returns’. To sustain these payouts, members must continuously recruit others beneath them, as the entrance fees from new recruits fund the returns for those at higher levels. However, since there is a finite population available for recruitment, the supply of new members—often found at the wider base of the pyramid or outer rung of the circle—eventually dwindles, leading to the inevitable collapse of the scheme. This unsustainable model highlights the inherent risks involved in participating in such ventures.
Financial hardship is a breeding ground for pyramid schemes
In times of economic hardship, pyramid schemes tend to gain greater traction, especially when coupled with the power of social media. In many instances, the wording of the scheme’s marketing material speaks of female empowerment, the rejection of patriarchal norms, and the belief in an inherent right to financial prosperity—echoing sentiments reminiscent of religious prosperity gospels. There is typically a disdain for conventional investment methods, coupled with promises to create wealth by fostering a close-knit, sacred community. Participants are led to believe that such collaboration will invoke universal forces to ensure everyone within the community becomes abundantly wealthy. Ultimately, these schemes offer a seemingly safe haven for those facing financial distress, loneliness, and personal hardship, providing them with encouragement and support on their perceived paths to abundance.
The problem with ‘gifting circles’
The term “gifting circle” is misleading, as it implies the existence of a gift when, in fact, there is none. The so-called “gift” is merely an entrance fee paid to the member at the highest level, serving as a return on their initial investment. If it were genuinely a gift, there would be no expectation of receiving anything in return. However, the “gift giver” pays the fee with the goal of ascending to the highest level to secure their promised investment return. Ultimately, nothing is free in a gifting circle; members are only buying into a hollow promise.
Marketing tactics
The marketing materials for these schemes often employ floral and spiritual language to distract from the underlying mathematics. To avoid resembling traditional investment schemes, membership levels are assigned ethereal names like seed, sapling, lotus, and blossom, or earth, water, fire, and air, fostering a sense of connection to a larger universe. Additionally, there is an element of exclusivity in joining the scheme, with new recruits often being told they have been hand-selected to enter a private group of like-minded individuals, with only a limited number of invitations available.
New recruits are encouraged to attend information sessions where existing members share their testimonials of their substantial gains as a motivation for joining. Frighteningly, new recruits are often encouraged to extend their home loans, sell cars or take out personal loans in order to join. New recruits are not encouraged to ask too many questions, but rather to focus on the community, to develop an appreciation for solidarity economics, and to believe that the universe will manifest financial abundance. Sadly, the nature of such schemes means that new recruits need to leverage off and exploit current relationships, with family members, friends and colleagues being first in line to be invited. The spiritual and psychological appeal creates a sense amongst the scheme’s members that they belong to something greater than just an investment scheme and, as such, it is easier for the exponential nature of the maths to be masked. Members are encouraged to meet regularly so as to share stories, encourage new members, give testimonies of their new-found wealth, and support each other on their journeys to abundant wealth.
The harsh reality is that continually recruiting new members for each cycle of a gifting circle is unsustainable; eventually, the pool of potential recruits will dry up, leading to the scheme’s inevitable collapse. When members come to this realisation, many feel too ashamed to acknowledge they have been deceived. Often, they remain in the scheme, hoping to recover some of their investments rather than exiting completely. Those who choose to leave frequently face backlash from remaining members who depend on them to secure their promised returns.
Reporting these schemes is challenging, as information is typically shared within close circles of friends, family, colleagues, and even religious leaders, creating an environment where individuals are reluctant to expose those near to them to authorities. Consequently, pyramid schemes often operate under the radar for extended periods, ensnaring more victims until the inevitable collapse occurs, leaving many with significant financial losses and emotional distress.
How to identify a pyramid scheme
If you receive an invitation to join a gifting circle, pyramid scheme, sou-sou, blessing loom, or empowerment network—regardless of the structure’s underlying shape—here are essential tips to help you identify such schemes:
- Be Cautious of promised high returns: If you are promised unusually high returns that are not aligned with market conditions over a short time frame, approach with scepticism.
- Recruitment dependency: If your returns rely on recruiting new members, proceed with caution. This recruitment requirement is a hallmark of pyramid schemes. Ask probing questions: Why must I bring new members? What occurs if I cannot recruit anyone?
- Upfront payments: Pyramid schemes often require an initial payment, disguised as a ‘gift.’ Investigate where this money goes, how it is invested, and what underlying assets are generating returns. Verify if the company is registered and request proof of its legitimacy.
- Secrecy and exclusivity: Be alert for terms like limited time, private group, closed community, and inner circle. Question the need for secrecy and exclusivity: Why limit membership? What makes this opportunity unique?
- Complex business model: The business model is often convoluted and couched in vague, spiritual language. Can anyone diagram the scheme to show how it operates, where the money flows, and how returns are generated?
- Membership levels: If the scheme presents different membership tiers represented by mandalas, concentric circles, or pyramid layers, exercise caution.
- Established organisation links: Investigate whether the scheme is associated with a legitimate organization. Check for a website, registered address, and registration with the Financial Services Conduct Authority. Ensure you are provided with legal documentation or contracts.
- Payment details: Verify the bank account information for your ‘gift’ or entrance fee. Is it a corporate account? Inquire about the recipient of your payment, its intended use, and your legal recourse should issues arise.
Have a fabulous day.
Sue