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More bad economic news: Recession putting consumers at increased risk of being duped by pyramid schemes

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National Consumers League issuing consumer alert, new resources at Fraud.org

 

Release Date: February 26, 2009
Contact: 202-835-3323, This email address is being protected from spambots. You need JavaScript enabled to view it.

Washington, DC—With nearly a third of Americans saying the current recession has made them more likely to consider a home-based business offer, consumer advocates have issued a warning that fraudulent pyramid schemes disguised as legitimate business opportunities are posing a greater threat than ever to consumers’ wallets and financial health. While “pyramid” and “Ponzi” schemes have received some media attention recently, with Bernard Madoff’s allegedly fraudulent investment scams making headlines, it’s clear that even the most sophisticated consumers are vulnerable to business opportunity scams. Today the National Consumers League (NCL) announced the findings of an Opinion Research Corporation (ORC) survey and launched new resources at www.fraud.org aimed at helping consumers spot and avoid risky business “opportunities.”

Pyramid schemes have existed for more than a century and in a bewildering array of guises. Despite their differences, pyramid schemes tend to share common elements, such as a focus on recruitment of new members, promises of unrealistic or “guaranteed” returns and, most importantly, the inevitable threat of collapse. Increasingly, pyramid scheme operators have tried to cloak their scams as multi-level marketing (MLM) opportunities through the sale of dubious products or services with little or no established market. Legitimate MLM businesses, also known as “networking marketing,” operate legally and offer goods and services through independent distributors. In legal MLMs, the focus of the business is on sales of products, not the recruitment of new members into the business.

In the ORC telephone survey of Americans ages 18 or older conducted February 12-15, 2009, many respondents—particularly African-Americans, Hispanics, and those with low incomes—revealed themselves to be at risk of falling for pyramid schemes disguised as legitimate work-from-home opportunities. Lower-income consumers (those reporting annual income of less than $35,000) were found to be more likely to mistake pyramid schemes for legitimate ways to provide supplemental income (42 percent vs. 33 percent of all respondents). They were also least likely (61 percent), as compared with all respondents (66 percent), to correctly identify pyramid schemes as a scam. Similarly, African-American (46 percent) and Hispanic (48 percent) consumers surveyed were more likely to consider a home-based business than the average (31 percent) yet less able to identify a pyramid scheme as a scam (48 percent and 35 percent, respectively).

Overall, an alarming number of respondents reported being approached to join some type of fraudulent pyramid scheme including chain letters (33 percent), general pyramid schemes (21 percent), gifting clubs (12 percent), and Ponzi schemes (7 percent).

“In a time like this, when many are struggling to make ends meet, some consumers may lower their guard and find themselves considering offers that – under other circumstances – they would rightfully identify as sketchy and high-risk,” said Sally Greenberg, NCL Executive Director. “NCL’s Fraud Center is alerting consumers to use their heads when it comes to searching for new offers of income. Scammers advertise pyramid schemes as businesses that provide ‘easy money’ or ‘guaranteed income.’ Consumers must keep a level head, even when times are tough, and remember the old adage: if it sounds too good to be true, it probably is.”

NCL’s Fraud Center, which tracks consumers’ reports of suspected and confirmed telemarketing and Internet fraud, publishes information about new scams and prevention tips, and forwards reports to appropriate law enforcement in the United States and Canada, has launched a new guide for consumers about pyramid schemes. The new pages at www.fraud.org/pyramids offer tools for distinguishing legitimate business opportunities from scams, including checklists for evaluating home-based-business offers, information about common types of pyramid schemes, and warning signs.

For complete survey results, or to check out NCL’s new pyramid schemes education content for consumers, visit www.fraud.org/pyramids.

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About the National Consumers League

Founded in 1899, the National Consumers League is America’s pioneer consumer organization. Its mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. NCL is a private, nonprofit membership organization. For more information, visit www.nclnet.org.

Survey Methodology

This data is the result of a telephone survey conducted among a national probability sample of 1,006 adults, comprised of 504 men and 502 women, 18 years of age and older, living in private households in the continental United States. Interviewing for this CARAVAN® Survey was completed during the period of February 12-15, 2009.

About Opinion Research Corporation

Opinion Research Corporation, an infoGroup company, has offered innovative solutions to the toughest market research challenges of clients worldwide since 1938. Since the 1960s, ORC has conducted CARAVAN®, the USA’s longest continuously running consumer omnibus. In addition, the firm has been conducting national, speech reaction, state and flash/overnight polls for CNN since April 2006. To learn more, visit www.opinionresearch.com.