While visiting with my friend Jorge this past weekend, the subject of pyramid schemes came up. Apparently his cousin Rosa got taken in by a confidence scheme. In Rosa’s case, she was not taken in by a confidence-man, she was duped by a confidence-woman.
The scheme entailed selling cosmetics products to friends and family. Rosa was told by the “regional manager” that the best way to make money from the cosmetics is to recruit friends and family to sell the cosmetics. Rosa could then expect to collect a share of her friends’ and relatives’ profits. Rosa was then told that if her friends and relatives recruited more people to sell the products, everyone involved could expect a handsome income.
Jorge said that his workaholic cousin did her best, but the business plan fell apart almost from the beginning. She was left holding the bag with boxes full of cosmetics nobody wanted to buy. The same happened to her recruits, and her recruits’ recruits. The friends circle is stuck with more than 1,000 boxes of cosmetics and beauty products with nobody interested in purchasing them.
When Rosa first mentioned the “business plan” to Jorge, he warned her not to invest in it. He recognized the “plan” as a pyramid scheme from the get-go. He was dismayed when she ignored his advice and invested a share of her life savings in the scheme.
Jorge explained to Rosa that while many fraudulent schemes are illustrated as pyramids, they should be seen as inverted pyramids. Inverted pyramids resemble funnels. Everything put into a funnel falls to the source. There is no trickle down from the top of a pyramid. The inverted pyramid or funnel keeps the profits rushing towards the originator of the scheme. The people at the top or middle of the funnel get little or nothing for their efforts.
Fortunately, Rosa did not invest all of her life savings in the scheme, but her loss was still substantial. Jorge says she probably learned her lesson and won’t fall for get rich quick schemes in the future.
“Rather fail with honor than succeed by fraud”–Sophocles
Hucksters selling pyramid schemes, executives embezzling funds, all manner of other lies and fraud exist in every society. Unfortunately, this is the manner of human nature regardless of our idealistic wishes to the contrary. Evidently, there will always be a share of the population who will be frauds.
So far, one of the best ways to protect the public from deceit and fraud is through official regulation and laws. The next best way is to encourage constructive skepticism when engaging in business agreements or other situations that require monetary or emotional investment. We are wise to remember the old maxim, “If it seems too good to be true, it probably is.”
One big clue that tips off the presence of fraud is the use of emotional tactics and the downplaying of authentic, concrete facts and statistics. Potential victims are given images of beautiful mansions, fast cars, bountiful luxury goods, and world travel. These images work to dazzle the listener. With the emotions focused on fantasies, rational thought is weakened. With reason crippled, the scheme can be more easily implemented. With visions of greatness, the listener is easily duped.
This common fraudulent technique isn’t limited to purveyors of pyramid schemes. We notice it showing up in politics and in personal relationships. Human nature being what it is, we unwittingly fall for fraud because of the lack of skepticism and the over abundance of wishful thinking. The path to greatness is not to be found through political slogans, commercial flash, nor other appeals to our emotions. Rosa had to discover this through her own mistaken reliance upon promises of wealth made by the scammer.
19th century Church of England clergyman Frederick William Robertson said, “There are three things in the world that deserve no mercy: hypocrisy, fraud, and tyranny.” I totally agree with that view. Society and individuals are greatly harmed by all three of these. The worst case scenarios involve the combination of all three. Unfortunately, the lion’s share of the population fails to acknowledge the problem until it’s too late.
It’s a good idea to be aware of fraud in our world and to be intelligently skeptical of our dealings with others. It’s also smart not to take this awareness to extremes and become paranoid. That said, healthy skepticism enables fraud detection.
The Blue Jay of Happiness quotes technology writer Evgeny Morozov. “There is no doubt that the Internet brims with spamming, scamming, and identity fraud. Having someone wipe out your hard drive or bank account has never been easier, and the tools for committing electronic mischief on your enemies are cheap and widely accessible.”