Scheme or scam?: Multi-level marketing companies often conduct presentations to potential members promising financial freedom and a better lifestyleThere is no fast track to getting profits or income. Nothing can replace hard and honest work.
IT’s now called the money game but it has been around for awhile, only that it was referred to as multi-level marketing (MLM) or pyramid scams.
There seems to be a resurgence of such scams recently probably due to the economic slow down. While it may be safer to put one’s money in the bank, the reality is that the interest is not that great. It’s the same with unit trust investments.
So, there’s little surprise that many people are attracted to MLM scams, with its huge returns, although they know there’s always a risk behind these schemes (or scams).
These people are seemingly prepared to take the plunge.
New recruits are told to just deposit RM5,000 and stand to gain RM1,000 every month. That’s so attractive – and that is also how one gets sucked into the game.
Imagine this – if there are over 20,000 members and each of them places RM5,000 in the scheme, that works out to a whopping RM100mil collected. The numbers get higher with more members recruited.
And we wonder why there are not many reports made by the victims to the police or Bank Negara Malaysia against these con artists.
I have a relative who pours scorn on his father who works very hard to put food on the table but this arrogant young punk thinks he can make a huge pile of money without selling anything or working for anyone.
Another friend, who declared himself to be mentally-challenged to escape the bill collectors, used to laugh at those studying hard for their exams.
He said although he was illiterate, he would soon make millions and hire graduates to work for him. Of course, he didn’t see his millions.
These people were driven by pure greed, really. Social media is filled with stories of young people making tonnes of money, often living in Dubai, or driving around in gold-plated luxury cars.
Sometimes, famous personalities are dragged in to be part of these advertisements – without their consent, naturally.
Of course, Google and Facebook are not responsible for these fake news and fake advertisements.
The scams include binary option trading which is essentially an unregulated, and sometimes, fraudulent, mainly offshore activity.
Binary option trading involves predicting if the price of an underlying instrument – shares or currencies, for instance – will be above or below a specified price at a specified point in time, ranging from a few minutes to a few months in the future.
Those involve in it receive a fixed amount of money if the prediction is correct or lose the investment otherwise. It is essentially a “yes” or “no” betting, hence the name binary, according to one report.
But that’s another story.
The one that is hitting Malaysians – particularly those in Penang where many scams seem to surface – is the straightforward MLM.
To be fair, there are legitimate MLM businesses. These actually sell products. Members have to sell real products to earn their income, and not sell membership.
You know you are getting into a pyramid scam when they tell you to just put your feet up and get more people to join in.
The MLM is simply about finding new members – or rather, new victims. It is as good as paying you some silly fake gold coins. In some cases, even so-called virtual coins.
You are told that the more members you recruit, you will double or triple your income. The pyramid will come crashing down once no new members are recruited anymore.
But some dubious MLM have gotten smarter. They sell products but they are mostly “worthless” goods like accessories, stones, cosmetics, health and beauty products, among other things. Some sell low-quality health gadgets with unproven scientific claims.
Come on, don’t tell me your home is filled with air purifiers and magic water dispensers? Or you have some lucky charm? Or stones?
According to Mark Reijman, who advocates financial literacy, these MLM use cheap products to hide the fact that members are actually investing in a pyramid scheme,
He said the products are there simply to hide the truth. Members are investing in a pyramid scheme!
“If the MLM cannot explain the source of profits or give details about the technology of the products, or do not permit you to show your contract to outsiders, they are hiding the fact that their product is useless and the profits come from new recruits and not from product sales.
“Be wary when you are asked to buy a large inventory of the product. Don’t fall for ‘patented’ or alleged ‘US technology’ or secret recipes. It’s all smoke and mirrors.”
He advised the public to be on the alert if the product is not sold through regular channels that have served societies for millennia, such as stores and (online) market places.
“If it is such a great product, why can it not be sold through other channels? Perhaps because those channels don’t allow you to recruit new members and they want to protect their reputation against fake or low quality products?”
There is a lesson here – nothing can replace the old fashioned values like hard work and having honest earnings. Greed should be kept at bay.
In short – pyramid schemes are unstable because at every new level it will require more recruits in an exponential manner, as Reijman warns.
Soon, the scam will run out of people who fall for the scam, at which time the payments stop and that’s when press conferences are called by the victims.
Millions lost because of a hacking job? – now that’s something new.
By wong Chun Wai On the beatWong Chun Wai began his career as a journalist in Penang, and has served The Star for over 27 years in various capacities and roles. He is now the group's managing director/chief executive officer and formerly the group chief editor.
On The Beat made its debut on Feb 23 1997 and Chun Wai has penned the column weekly without a break, except for the occasional press holiday when the paper was not published. In May 2011, a compilation of selected articles of On The Beat was published as a book and launched in conjunction with his 50th birthday. Chun Wai also comments on current issues in The Star.
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