Financial pyramids - they're back! - Trustpilot

 Financial pyramids - they're back!

Have you ever heard of pyramid schemes? High returns, low or no risk, and guaranteed returns. Nobody can fall into this, right?

Personal finance expert essay

Hey! visitor. We are going to talk to you about a very serious topic that, after a short period of silence, is back in full force: pyramid schemes. High return, very low or no risk, and guaranteed return. Nobody can fall into this, right? But, unfortunately, many people still fall.

The movement of the financial pyramid is cyclical and always goes back to times of financial weakness of the country, only in our current context. Recently one of the largest fraudulent transactions in the history of our country was exposed and thousands of Brazilians lost their money. Oftentimes, pyramid schemes are disguised as multi-level marketing and are still called the “sticker boys” of famous (and loved) personalities from the general public.

The subject of fashion will always be an industry or a product of great interest in general. Currently, scams involving bots and solar energy are being used by fraudulent companies, promising profitability as ambitious as those of the crypto-pyramids of the recent past, ranging from 16% to 30% per month.

Promises are usually so attractive that investors do not find it strange that they are required to deposit into personal checking accounts, or even buy “packages” (from any index) in order to obtain a guaranteed position of an active participant in a company. This is so annoying that I've highlighted seven signs that will open your eyes the next time someone tells you about "the investment of the century." But first, I'll share some fun facts about these charts.

Why is it called a pyramid scheme?

Because this scheme is built on levels like a pyramid.

At the top of the structure is a fraudster who initially offers a group of investors to invest in a fund or other type of financial instrument with the promise of high returns. Novice investors automatically join the lower rung of the pyramid. Over time, older members invite new investors who move to levels just below the pyramid. The pyramid is a living being, it moves: new participants rise, and those who are already at the top leave the scheme.

But over time, this entire structure collapses. This is why first and first entrants end up making some money.

The logic of the reward is simple

Old investors are paid from the resources of new members - in order to join the business, new entrants must invest a predetermined amount. There is no real profit in this process, just use money from new members to pay old members. The promised return at the start of an investment is usually provided by the fraudster as a way to show that the investment is serious and that the promises have already been kept.

Remember when I said pyramid schemes are living structures? They have an expiration date and they tend to break down at some point. The main reason is that sooner or later it will be difficult to involve new participants in the process, which will make it impossible to maintain its growth rates. Due to the lack of new investors, incomes decrease and the fraudster is no longer able to pay compensation to the older ones. The pyramids always end badly: those who do not leave on time will suffer huge losses.

And how not to become easy prey for scammers?

I have highlighted 7 signs that will help you identify a potential pyramid.

1. Aura effect

Scammers often sell the image of successful investors, millionaires, and methods that are supposed to have proven financially successful. Don't be fooled by appearances, this tactic is widely used to recruit new members into the pyramid - with unfortunately relative success. This is called the "halo effect" in the field of behavioral finance, where the human mind rules and draws conclusions about another person from stereotypes.

2. Social proof of financial success

Do you know the epic events with photos from the founders' travels and car collection by the track owner as proof that he actually made money from it? This is exactly what I'm talking about. Presentation is a classic manipulation used as evidence of business profitability.

3. The validity period is limited!

In order to attract new members, scammers tend to promote the idea that these investments are valuable and exclusive and that this is a unique opportunity for high returns - and these opportunities do not appear every day!

4. Constant search for new members.

The investor is usually informed of the need to invite family and friends early in the scheme, and requests for new members are reinforced throughout the life of the pyramid.

5. Guaranteed profitability and no risk

Promises of high returns and very low (or no) risk. There's no secret: In finance, risk and reward go hand in hand. Run a red flag for any promise of guaranteed high returns, low or no risk, and still in a short time frame.

6. No registration with regulatory authorities.

People who fall for pyramid scams usually do not know that selling investments in Brazil requires registration of distributions with authorities such as CVM (Securities Commission). This application can be easily completed on the municipality's website.

7. Deposits in personal accounts

Finally, the fraudster requests a deposit in the individual's checking account to ensure the investor's participation in the scheme. Transferring money directly to personal checking accounts or to a company bank account without registering with CVM is the last sign that something is wrong.

I end this content with a sincere request: share it with the people you care about. In recent years, the identity verification mechanism has broken the record for investigating fraudulent schemes.

The fraud became more complex and the treatment became called financial education. There is certainly no legal way to get the level of income promised by the pyramids.