Ethical Dilemma

Pyramid selling is a scheme in which the primary purpose is to earn money through recruiting other individuals. Individuals are encouraged to join through the promise that they will receive payments for introducing further participants. The Department of Trade and Industry in the UK refer to such schemes as illegitimate and illegal if, ‘while purporting to offer business opportunities, the sole purpose of the scheme is to make money by recruiting other participants, rather than trading in goods or services’. Other countries similarly consider this a ‘bogus’ form of selling. The main problem with pyramid selling is that it requires an infinite supply of new participants if everyone is to make money, yet supply will always be finite, thus saturation point is generally reached quickly and later recruits have little chance of recovering their money. Do pyramid schemes encourage deceptive selling?

Useful links
Department of Trade and Industry
www.dti.gov.uk/ccp/topics1/facts/pyramid.htm

Points to consider

For:

• to recruit the number of individuals required for pyramid selling individuals are likely to use people they know, like friends and family. These are individuals you trust and you may be more likely to join. Friends and family are not likely to openly deceive you, but may be caught up in the ‘potential’ of such schemes and not consider fully the likelihood of failure.
• common sense dictates that not everyone could receive money. For example, if six people each invested £1,000 in a scheme when they reach the top of the pyramid they would each expect to receive £6,000. However, to receive that amount 36 additional individuals would need to have invested £1,000 each. Each of those 36 investors will need another 216 investors before they could receive their £6,000, and so on. Each participant, therefore, requires 6 investors to make a return. Eventually the supply of potential investors will be exhausted and the majority of individuals in the scheme will receive no money.
• no money actually gets ‘made’ as old investors are paid by new investors.
• the sceme plays on people’s vulnerabilities with get rich quick promises.

Against:

• friends and family are not likely to openly deceive you.
• you should research a scheme fully before joining.
• pyramid selling has been well publicised; you should be aware of the dangers.
• there are lots of points of advice, e.g. Citizens Advice Bureau.