Pyramid Schemes and Multi-level Marketing

In a classic “pyramid” scheme, participants make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of skyhigh returns in a short period of time for doing nothing other than handing over your money to the scheme and getting others to do the same. Many ongoing multilevel marketing schemes are also built-in pyramids selling products through a
network of distributing salespeople.
The pioneers of these schemes go to great lengths to make the program look like a marketing program for a group of products. They are neither manufacturers of any products nor dealers or distributors of any manufacturing concern. These businesses simply use the money coming in from new recruits to pay off early stage investors. As soon as these pyramid schemes reach a certain size when there is no substantial inflow of new members the whole structure collapses. At this point the schemes get too big, and the promoters cannot raise enough money from new investors to pay
earlier investors. The chart below indicates that a pyramid scheme can become impossible to sustain,
and its participants will outnumber the total population of Pakistan before reaching
the 11th level if it started with six participants in the first level. 

 

In view of the above, the general public is advised in their own interest to beware of companies and individuals engaged in such business practices. It must be noted that no one can invite and accept deposits or offer loans to general public through advertisements, unless duly authorized to do so under the law. It is recommended that you verify the status and legal aut hority of such entities from Securities and 

Exchange Commission of Pakistan or State Bank of Pakistan.