Did an old-time friend who hasn't talked to you for a while suddenly reach out on Facebook about a business opportunity?
You know that Facebook scams are prevalent, so we understand if you think this might be a pyramid scam.
We've looked into official Facebook sources and studied how it deals with scam reports and what measures it has to prevent such activities on its platform. We also sought tips from authoritative online safety publications and read real-life stories from people who experienced FB pyramid scams.
At the end of this article, you’ll learn the most critical step to do when you encounter a Facebook pyramid scheme. Don’t miss out on valuable steps that can help prevent social media scams. One loophole can make you vulnerable to identity theft.
How do Facebook pyramid schemes work?
In a pyramid scheme, the organizers or founders claim you’ll earn additional income as you recruit more people. It’s called such because it forms a pyramid shape as more people join the organization. However, it’s an unsustainable form of business.
For example, if a member needs to recruit 10 people, then at level 10, the number of participants should be 10 billion. It’s more than the world population, which is only projected to be at 8 billion at the end of 2022.
The inevitable result: all pyramid schemes will eventually collapse when members become scarce. Also, the people at the top will make the most money, while those at the bottom will not have any income, despite paying.
That’s why a pyramid scheme is illegal, and several states have laws addressing these fraudulent acts. One example is Florida’s Deceptive and Unfair Trade Practices Act, which prohibits recruiting members using a chain referral sales technique. This state law also requires a consumer to purchase a product or service worth more than $100 for it to be considered illegal.
So who do pyramid schemes target? Almost anyone can be a victim of this scam, but most are stay-at-home parents and people with limited employment opportunities.
Before, scammers had to meet with their prospects to sign them up under the bogus company. But due to social media sites like Facebook and Instagram, they only need to post so they can reach thousands of friends and followers.
So how do you spot modern-day pyramid schemes on Facebook?
- Be cautious of an old acquaintance you haven’t talked to in years suddenly reaching out to you on Facebook and offering a lucrative business.
- Have you received a meeting invitation about vague business opportunities? It likely refers to a pyramid scheme, especially if they only mention that you can passively earn money.
- When your Facebook friend emphasizes recruiting people instead of selling products, it’s most likely a pyramid scheme.
- Most organizers of this scam present confusing compensation setups based on commissions whenever you invite new members to the company.
- If you ask questions, they’ll usually dismiss them and say that they’ve done their research and this business is legitimate.
IMPORTANT: The most critical step to do when you encounter a Facebook pyramid scheme is to say no and don’t go to any meetings politely. This way, you can show them that you’re not in any way interested in the bogus company.
What are examples of Facebook pyramid schemes?
Fraudsters use different techniques to carry out pyramid schemes. Here are some of them.
1. Gifting circles
An example of a Facebook pyramid scheme this 2022 involves gifting circles.
Here’s how the scam works: you need to pay an entry fee with the promise of a large payout based on the number of people you recruit. It has a different name but the same format as the conventional pyramid scheme.
Did you know that becoming a member of gifting circles can lead to identity theft? When you join these groups, you provide personal information that scammers may use to commit ID theft.
2. Secret sister
This scheme is the same as gifting circles, but the only difference is that members supposedly give physical gifts. The organizers post deceiving pictures on Facebook, showing that they receive hundreds of gifts because of the group.
However, it’s unlikely that you’ll receive the same amount of gifts as the scammer. They may also steal your identity because you must give your name and home address to join the group.
As you can see, organizers of Facebook pyramid schemes not only steal your money; they also collect information to commit fraud.
How can you stay safe from Facebook pyramid schemes?
Facebook pyramid schemes can compromise your identity and financial health. Fortunately, there are ways to avoid them.
- Be wary of unsolicited offers, even those coming from your friends.
- Search for the company and add the word “complaints” or “scam.” If you’ve found complaints about the business, think carefully before investing your hard-earned money.
- Ask for the specifics; if they can’t provide any, it’s likely a scam.
- Don't share your personal details with strangers, especially those you’ve met online. It can make you vulnerable to ID theft.
- You should also remember that a celebrity endorsement doesn’t make the company legitimate.
Unfortunately, Facebook doesn’t have a specific category for reports about pyramid schemes. But if the company has a page, you may report it as a scam.
Pyramid schemes vs. Ponzi schemes vs. MLM
It's common to use these terms interchangeably, but they’re different types of scams. We’ve already talked about pyramid schemes, so now we’ll explain how Ponzi schemes and multi-level marketing (MLM) work.
1. Facebook Ponzi scheme
In a Ponzi scheme, promoters convince you to invest hundreds to thousands of dollars and promise high returns. However, they use your money to pay a return to other members.
You won't receive any amount, and they may even block you after getting your investment.
2. Multi-level marketing
MLM is a legitimate business method, but not all MLM is legit.
Some MLM operate like a pyramid scheme but offer products to distributors or participants. However, they still require you to recruit new members so you can earn large amounts of money.
Use Facebook without becoming a victim of pyramid scams
Although there are pyramid schemes, Ponzi schemes, and MLM on Facebook, you can still use the online platform safely.
Once you know how to recognize their warning signs, you can protect yourself from these scams. It’s also helpful to research the company and not be influenced by celebrity endorsements or suggestions from friends.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
