What Should We do to Prevent Pyramid Scams?
Here is a typical government warning about an illegal pyramid scam.
ScamNet reports on Canadian Pyramid, and describes it as follows.
"Canadian Diamond Traders (CDT) is being promoted on the Internet, explaining how people can join the scheme and by recruiting others, receive a diamond and money at exit when they reach the top of the pyramid.
The website shows a pyramid diagram with four levels. Recruits place a deposit on a diamond through the website and commence on the base level as a Diamond Miner (8 positions). By recruiting others, participants progress through to Diamond Cutter (4), Polisher (2) and the top, the Diamond Collector. Once reaching the top, they supposedly receive the diamond and $3,000 cash. They are also encouraged to rejoin, which continues the scheme.
CDT's website makes such statements as:
* If you have $100 to invest and you know two other people with $100 to invest, you can make $3,000 over and over again;
* You earn commissions by referring other members to the program. When they make a purchase, you get credit for the sales; and
* The more people you directly sponsor, the faster you will cycle out and the more frequently you will cycle. The ideal is to sponsor at least two members as soon as possible."
This is an illegal pyramid scam.
But how should such pyramid scams be dealt with? The typical regulatory approach is:
Participants risk prosecution or other legal action if they ignore warnings and become involved in this scheme. They risk fines of up to $20,000 as individuals or $100,000 if they are involved as a company.Participates are fined, but not jailed, for their involvement.
Can we educate enough people about the illegality of such schemes and make the fines significant enough to deter them? Or should we add on jail sentences?
I don't think so. With pyramid trading schemes, people are attracted to the prospect of earning quick money merely by recruiting other people into the scheme.
In my opinion, instead of criminalizing this human attraction, we should regulate it. Since these things have been around forever, so what not legalize and monopolize the playing field?
We should have a State or Province sponsored lottery in which, say the number of friends that you have on your myspace account, is used to randomly generate your movement up the ladder. After a time period, the person who got moved to the top is the winner -with a little cut to the lottery for playing.
Society as a whole could benefit from our addiction to pyramid risks.
