14 November 2008
Caerphilly County Borough Council's Trading Standards Department have been alerted to a pyramid type scam, which has moved into the Greater Gwent area.
People are invited to invest money, in this case believed to be £3000, which goes to the person on the top of a so-called 'chart'. Those people are then added to the chart, and recruit others to join, who are invariably family, friends & colleagues.
The hope is that they will eventually get to the top of the chart and receive money several times their initial investment from people recruited into the scheme after them.
An example of this type of scheme is as follows:
If eight people invest £3,000 each in a scheme and then progress through the levels of the pyramid, they will each expect to receive £24,000 when they reach the top. For each of those eight people to receive that amount, it will be necessary for 64 people to have each invested £3000. Each of those 64 investors will be expecting to collect their £24,000, but that would mean that 512 people would have to have invested. Subsequent investors would need 4,096 participants, then 32,768 participants, then 262,144 participants and so on.
In simple terms, each participant needs another eight investors in the scheme to get their money back and make a return.
The only money available is provided by people who have joined the scheme - there is no money from outside sources.
Such schemes eventually collapse and people lose their money because very quickly the members run out of people to get new money from. The impact of the collapse of such schemes is far reaching, resulting in debt, conflict and the ruin of friendships.
Schemes such as this are illegal, and are a banned practice under the Consumer Protection from Unfair Trading Regulations 2007. Caerphilly County Borough Council strongly urges people not to get involved in these types of schemes.
Cllr Lyn Ackerman, cabinet member for the environment said, "These schemes are a con which take advantage of vulnerable people and need to be stopped - some people could be lured in with promises of making money.
I would urge anyone who hears about this or any similar scheme in the workplace, or from friends or family not to invest any money and to pass this message on to anyone they know who may be considering joining up."
Chief Inspector Jo Bull said: "As Christmas approaches we are all concerned about expenses. Experience shows us that opportunities such as pyramid schemes lead only to disappointment and heartache amongst families and friends.
I urge members of the public not to commit to such schemes and if in any doubt over any financial commitment in this area to contact Trading Standards."
If you or a family member have been approached by such schemes, need advice or have information for Trading Standards please contact Consumer Direct on 0845 4040506.
For further information about such schemes visit the consumer Direct website at: www.consumerdirect.gov.uk/watch_out/scams/pyramids-chains
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