How to Identify a Pyramid Scheme

I have a special treat for you today. Earlier this week I received an e-mail, addressed to my Skeptic Detective e-mail address, inviting me to realize my financial freedom, have more free time and pay less in taxes. Sounds great right, I mean, who wouldn’t want that?

Well, call me skeptical, but I immediately thought that something was fishy. Here is the e-mail I received, in its entirety.

01 February 2011

I came across you online. I have just three questions for you.

Would you like to earn money working part-time from the comfort of your home?

Do you want more time in your life to do those things that you always wanted or dreamed about doing but could never do because of lack of time?

Do you want to pay less in taxes?

If you answered yes to two out of three of those questions above simply reply to this email and I will follow up with you.

Thanks,
Joe Richard

Naturally, I requested more information. “Specific” information. This was the response I received.

02 February 2011

Angela,

Yes I am searching for people that are serious in working from home and helping other people. We provide an outstanding product called limu fucoidan which is a seaweed off the coasts of the Island of Tonga that has amazing health benefits. Would it be ok if I could give you a call so you can have more info?

Thanks,

Joe Richard

Hmmm, seaweed? With amazing health benefits? Lets see what the internet says about that…

So, I headed on over to the Memorial Sloan-Kettering Cancer Center (MSKCC), I like this site because they provide information on “integrative” medicines in two formats, one for medical professionals and one for consumers. This is very useful if you want a more scientific take on the medicinal qualities of a given product.

Fucoidan is a complex polysaccharide (a carbohydrate found in compounds such as starch, glycogen, cellulose and chitin) found in brown seaweed. It can slow down blood clotting and studies show that it may prevent the growth of cancerous tumors. However, there is no human trial data to substantiate these claims.

The following list summarizes purported medical benefits of Fucoidan:

  • Immunostimulation – Although in vitro data suggests a role for fucoidan in boosting host defense mechanisms, human data is lacking.
  • Allergies – There is no clinical data to support this use.
  • Lower blood pressure – This use is not supported by clinical trials.
  • Decrease cholesterol – There is no data to substantiate this claim.
  • Inhibit blood clotting – Laboratory studies suggest that Fucoidan has anticoagulant and antithrombotic effects.
  • Inflammation – There is no data to support this use.
  • Antibacterial – There is no clinical data to evaluate this use.
  • Antiviral – No studies have been conducted to investigate this use.
  • Bottom Line: Fucoidan has not been shown to treat cancer in humans.

    From this it is evident that Fucoidan has no “amazing health benefits”. Having discovered this for myself, I decided to try again to get Joe to commit to specific claims about the product he sells. Also, with a growing suspicion that I was dealing with a pyramid scheme, I asked the following question:

    02 February 2011

    What exactly are the health benefits of limu fucoidan and what are the costs to me to get involved?

    I was not surprised by Joe’s response a few days later:

    04 February 2011

    Angela

    Here is a great article Click Here

    You can pay $30 to be a distributor. You can do the starter pack which is $297
    that is what I did. You receive about $400 dollars worth of supplements and you get
    your money back after only three sales. We have a fabulous system in order to do this even if you don’t like to sell or just don’t know how. There is a package that is $997 which you get practically a year supply of all our products and you get to earn higher bonuses as well.

    What would you like to know next?

    Joe Richard

    Joe’s “great” article is a treatise on the (already doubtful) health benefits of the product he sells as a front for his pyramid scheme. They claim that Fucoidan can be used to treat viruses and cancer. Specifically stating the following:

    When battling viruses it seems that the fucoidans bolster the cellular protection to prevent the introduction of the virus into the healthy cell. Further, they seem to inhibit the ability of the virus to replicate by preventing the replication of the virus in adjacent healthy cells.

    On a cellular level cancer acts much like a virus, spreading through a replication of the diseased cellular structure. Again, due to the fucoidans’ ability to protect the healthy cell there is increased resistance to the spread of the disease throughout the body.

    Wait, what? A virus spreads by inserting copies of its RNA into a cell’s nucleus and copying its self billions of times until the cell walls break and the virus goes pouring out to infect more cells . Cancer spreads by growth. Viruses spread by reverse transcriptase, cancer spreads by mitosis, it divides like any other cell. The “great article” is so wrong it’s impossible to take seriously.

    Joe’s response also confirmed my suspicion that there would be some kind of buy in. $30 to register and you have to purchase the product. I’m not sure if you are expected to use the starter pack, but from my experience with Amway and Golden Products, I assume that this is the case. And $300 is not chump-change. But this was mostly confirming my suspicion that Joe Richard is trying to rope me into a pyramid scheme. The line in his e-mail which raises the giant red flag in my brain is “you get your money back after only three sales. We have a fabulous system in order to do this even if you don’t like to sell or just don’t know how.”

    What would I like to know next? How about this Joe?

    04 February 2011

    Hi Joe,

    So, if I sign up to be a distributor, do I also have to buy the products or is there a way to sign up without doing that?
    And, what would I be selling? If I don’t like to sell, how would I make any money?

    Kind regards,
    Angela Meadon

    Joe took about a day to respond, and I think I might be starting to get to him.

    05 February 2011

    Angela,

    To sign up you do not have to buy the products right away, but as a distributor I do recommend it. I have just started and the guy that signed up with me wanted to do it.
    I did not even really have to “sell” it to him, he just wanted to make extra money, those in my upline did the alot of the talking which is nice. We are working together as a team. I just look for people who would like to earn extra money from home. If there is someone with an illnees I ask them what do they want to do about it and that I can help them.

    Ah, the meat of the matter at last! Joe strongly recommends I buy the products, but it’s not compulsory. You see, what makes this a pyramid scheme is that you have to pay to join. You have to pay to become a “distributor” and your upline does the talking. You are just a sucker who has to pay to be a salesman for an expensive product, and to sell it you have to make bogus health claims.

    From the website of the US Securities and Exchange Commission:

    In the classic “pyramid” scheme, participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

    The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors. But eventually the pyramid will collapse. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money.

    The chart below shows how pyramid schemes can become impossible to sustain:

    My final e-mail to Joe:

    06 February 2011

    Hi Joe,

    That sounds interesting, what is the name of the company you work for? Thank you for answering all my questions.

    Kind regards,

    Angela Meadon

    Please tell me who you work for Joe, I’m going to report you to the FTC.

    **Joe has provided me with the company name and website and I have reported them to the FTC.

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    34 responses to “How to Identify a Pyramid Scheme

    1. If “the studies haven’t been done yet” then the benefits aren’t *proven*. They are *anecdotal observations*. The fact that you need to have this pointed out demonstrates that you aren’t qualified to evaluate such things. I realize I’m being harsh, but you need to be straightened out here.

      I’m willing to believe that a *few* people have made money; that’s how pyramids work. Bring proof that more than 50% of the individuals involved have a true net profit (not including “sales” to themselves) and I’ll apologize.

    2. If there are more than 3 that are all around the same number of searches then you have a decision to make.
      People have different views, but you can never know who to trust.
      Google offers a free service called Google Webmasters
      that is available to anyone with a free Google account.

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    4. People will debate the definition of “pyramid scheme” till they’re blue in the face. The definition that I use is if getting other people to do *substantially or exactly the same thing that you are doing* is an essential part of the business model, then I’m going to call it a “pyramid scheme”, and I am not interested in hearing others whine that “no it’s not, it’s MLM!”. It walks like a pyramid, it quacks like a pyramid.

      These schemes are illegal in many European countries, for the obvious reasons. They’re legal here. It’s no coincidence that the principals of Amway and a few other large MLMs have made a lot of campaign contributions.

      For more, you may wish to visit http://pyramidschemealert.org.

    5. Pingback: How to Identify a Pyramid Scheme | Amateur-Science·

    6. I am a LIMU promoter and the person that was being spoken to from LIMU was part of 1 of the 2 teams. The team she is part of promotes mainly the Business side and over exaggerates the Health Benefits. I have been to a health seminar where a Doctor was talking about the Health benefits of LIMU and he wasn’t a paid spokesperson like Medicine companies pay Doctors to prescribe them.
      We do not say it’s a cure, the benefits come with time.

    7. Okay, guys. There are obviously quite a few studies out there that have demonstrated the specific role of fucoidan in alleviating specific aspects of specific conditions. Having said that, it is not the panacea that the company claims. It does not cure cancer. It does not cure HIV. And it sure as hell does not cure MS. The problem with overstating the health benefits of a product is that these outlandish claims undermine the real benefits, which are certainly there. I’m betting that MORE people would be interested in Limu if the company took a humbler approach. As they stand, Limu’s claims sound like Sigmund Freud’s ringing endorsement of cocaine.
      The other problem is that MLM companies and pyramid schemes *look” the same to a potential consumer. Sure, there are technical differences, but any time I have to make a bunch of phone calls and correspond with a sales rep via e-mail, it just seems shady to me. Please realize this. Even if the company has noble intentions, all of this hassle and all of the overreaching claims set of people’s scam alarms. Finally, attacking strangers on the net and making uppity jabs reflects poorly on the organization you represent. This makes the scam alarms ring even louder.
      I wholeheartedly agree that the US does not embrace alternative therapies. To be clear, I believe that there are *many* effective alternative therapies out there. Limu is probably effective for certain people with certain conditions when combined with other effective treatments. But this has nothing to do with the evil pharmaceutical industry hiding the cure for cancer from the general public. This has everything to do with a company that has shady practices, makes outlandish claims, and employes sales reps who are incredibly rude to skeptics. Perhaps companies like this are part of the reason that the alternative healthcare industry sometimes has a bad reputation.

    8. Well just to be completely fair there is a difference between a pyramid scheme and a multi level marketing company. Common Multi level marketing companies are like Amway, Avon, Pampered Chef. Things like that. True this product is not FDA approved but there are medicines that are and still are not safe for you. As for this product I did a little research on PubMed, which is the most reliable place to go research in the medical field. I’m a Pre-Med student and the professors only allow us to do research on this site. Usually over 50 studies makes a topic legit. Fucoidan, which is the main ingredient in Limu, has over 1000. The most I have seen were around 1 to 2 hundred. Also it has been tested on human cancer cells and caused them to apoptosis (self destruct), Hope this helps.

    9. Sad you are all so sad and brainwashed with the media and video games, there is a cure and science has proven it, the medical doesnt want it to see it, because it would take away billions of dollars they receive a year for cancer treatments …holistic all the way……I am walking talking proof of the Limu, your febble little minds are no geeks or of any smarts at all…..because the truth is the truth no matter who believes it, and the truth is sometimes stranger then science fiction.

    10. Honesty upfront: I am a LIMU promoter.

      I have but 1 question – if LIMU is an illegal pyramid scheme, and reported to FTC over a year ago (the article was written February 2011), how come it’s still operating?

      I’ll grant you that when it was “Royal Tongan Limu” they had to destroy products due to overly reaching claims – not false claims, but claims of that it would cure, rather than just help (such as eating health helps). Limu learned their lesson and now disclaims that their products are not a cure or medicine, but the positive testimonies abound.

      I agree that we must be careful in the marketing of this products, but that doesn’t make the product or company bad.

      • I can’t answer for a bureaucratic institution. I have no idea what their procedures are, and I’m not even an American citizen, maybe that’s why they haven’t done anything.

        Don’t fool yourself, Derek, this is a pyramid scheme. It is not a legitimate business model. In legitimate business, you don’t have to pay to be a salesman. Every time you pay for that product you think is so great, you are funding the pyramid scheme.

        Positive testimonials might be great for wooing customers, but they are worthless as evidence of efficacy.

      • Certain wording is illegal. A company that makes false claims will generally be given a warning, change their wording, and continue one. Unfortunately a company taking advantage of people is not illegal as long as they remain vague.

        I work for a business that deals with many of these types of companies and the claims are always outlandish or flat out lies. It really sickens me that they convince good people that their product works or that they can make money selling the product. Anyone who participates in this kind of business is either ignorant or a piece of sh*t.

    11. It’s hard to see a perfectly clear picture on what it really is until you’ve actually experienced both sides. My mother has grown obsessed with LIMU and it scares me, only because what see I from LIMU as far as testimonials seems to have been written by a fifth grader, usually with some sort of boasting about money and BMW’s. It’s all the same. LIMU’s business structure is a Pyramid scheme, only my generation is a little ignorant and quick to defend what they don’t understand.

      • I have seen both sides with more than one pyramid scheme, so I know exactly how easy it is for people to get sucked in.

    12. Hey Angela, you seem to by quite a skeptic when it comes to “schemes” like this. I’m only assuming you tried some sketchy one that left you broke so you had to make a blog that baggs on other companies like LIMU. Let me fill you in on something this is far from a so called “scheme” I’m 18 years old and I have earned $25,000 in just 6 months. They gave me a payed for BMW. I’m making as much as $2-5,000 a month. So keep bagging on companies, but LIMU is one you shouldn’t mess with. I wasn’t the healthiest teen, but once I started LIMU’s products I saw a signifigant change in my body structure, muscle tone, weight, concentration, sleep, and skin tone. Live better and feel better is the LIMU experience and its no scheme. I’m paying for college from LIMU, its 100% legitamate.

      Sincerely,

      Shane C

      • Shane, I can definitely attest to what youve said about LIMU! I’m living my life again because of this stuff and I’m not even promoting it just yet! Just drinking it was enough for me because I am now pain free after being diagnosed with Lupus and Rheumatoid Arthritis at the age of 24! It took 4 DAYS for my body to be pain free after I started drinking LIMU and I stand by it 1000% percent! I am a real person with a real testimonial! Don’t believe me, email me!

        • I am 21 years old and a diabetic. I was skeptical about the business structure and the product as well. I was given a free bottle from a friend who promotes Limu. I drank it one time and my blood sugar was lowered into a healthy range (82) after a large meal. I do not take short term insulin shots and I did not take one with that meal. I can’t claim any other of the health benefits of Limu yet but I KNOW for a FACT that it is a blessing for diabetics.

          • This is such an irresponsible statement! Please don’t go off your insulin in favour of Limu. Sebastien is not on insulin, don’t take his word for it!

            • I am out of my wheel chair thanks to Limu, I have MS, and struggled for years with nothign to help me, then I found Limu, and I am up and walking using my legs and everything again…..If you dont need the meds or band aids dont use them….My name is Toni Probst and I am LIMU…..my kids have autism/aspergers since they have been on Limu I no longer see the autism…more importantly the severe meltdowns….no autism signs, they are happy fun loving children…oh and I also get I love yous now….before with the autism they couldnt do that. When your body is healed it no longer needs what the pharm labs and shark medical companies want you to have….

      • This is some potent snake oil. We’re just missing the Baptist preacher pushing foreheads and proclaiming ‘You’re healed!!’ …

    13. What amazes me is how a person who was signed to one of these schemes, will go right into the next one after getting taking advantage of and even if you try to tell them whats going on, they are so brainwashed that they actually believe theyre signed to a legit MLM and they will make money!!!!

    14. PS: The Consumer Protection Act is already in full force since the 1st May (a small delay there, but it’s here to stay). And yes, consumers have the right to report these schemes and protect themselves from this junk. Plus, selling or promoting misleading information could cost you a fortune. I recommend everyone to read the Act and get informed, especially if they’re in business.

    15. I assume most people connected to Internet will receive this kinds of emails. They all relate to getting rich, achieving financial freedom, receive extra cash without working too much or knowing how to sell or knowing too much about the business world in general. I have seen pyramid schemes, scams, some of them presented so attractively, when in fact you have to put everything pen on paper to realize that your return doesn’t outweight the initial investment (and there’s always the hidden details). For all those looking for an easy way out from this scheme, I advise you to read and enquire about it first, online and offline, wherever you can. Type the name of the scheme plus “scam” in your Google bar and see what other people have to say about it. Dare to ask before you sign or pay anything – thanks Angela for your guts to actually confront one of these scammers. If you’re serious about making money, there are many decent, honest and reliable ways to do so.

    16. Interestingly, in terms of the Consumer Protection Act which comes into full force in South Africa on 1 April 2011, Pyramid Schemes are prohibited outright.
      “A person must not directly or indirectly promote, or knowingly join, enter or participate in (amongst others) a pyramid scheme” which is described as an arrangement where participants receive compensation primarily from their recruitment of other participants, rather than from the sale of goods or services.

    17. Excellent article, Angela, I’ve just emailed it to my very gullible in-laws who forward these emails to me on a regular basis.

    18. The bit I find really disturbing is he asks people what is wrong with them and then tells them he can help them. I take it this man is a qualified medical practitioner? If not, he has no right to offer that type of advice to anyone.

      This is a very good article Angie – I hope lots of people read it and realise that they should ask questions and check the facts before they go into “businesses” like this.

      • yeah, there is nothing more disgusting than these kinds of people giving medical advice to people with serious medical conditions. He has absolutely no right to!

        • I agree. Limu is a pyramid scheme. We had key word had friends pushing this crap. Till we researched and found a ton of bogus claims and lawsuits claiming fraud for their outlandish healthy benefits. Funny thing is some of these comments in support of Limu, I’ve seen on other threads of people agreeing that Limu is a scam!

    19. I always imagined the cure for cancer to be announced through a random email from some stranger and for it to be distributed via network marketing.

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