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What is pyramid scheme.

A legitimate business is based on the production, sale or resale of goods, as well as the provision of various services. However, for many, this path may seem too difficult, and not always warrantable. Thta's why some opportunistic people choose an easier way of getting rich — pyramids schemes.

These are organizations where the only source of income is the affiliation and/or intermediate membership fees. At the same time, no real business activity is being carried out. People are simply lured by promises of huge interest rates and the opportunity to get rich quickly.

Financial pyramids

Principles of building pyramids schemes

The cornerstone of this scheme is that the initiators of a project only profit from the influx of new investors.

But only two categories of ordinary participants can remain in the black:

  • those who were among the first investors and managed to withdraw money on time;
  • those who invited a large number of new investors and received large referral bonuses.

In this case, the fees from new members are used exclusively to issue rewards to those who are at the top levels.

Funds within the pyramids scheme can be distributed by different schemes. And its success directly correlates with the influx of new participants. But sooner or later there comes a time when the amount of incoming funds becomes less than the total amount of remuneration paid to investors who entered earlier. At this stage, the "beautiful structure" collapses, and it is no longer possible to withdraw money from there.

How to identify a pyramid scheme

To avoid scam, it is important to learn the theoretical principles of pyramids schemes. There are several points that are advisable to remember, and pay attention to them every time there is an offer to invest in any project:

  1. High interest and fast money back promise. If the proposed rate of return exceeds 30% per annum, this is a red flag. All, or almost all, legal methods that ensure this rate of return have a medium or high level of risk. You are to put a simple question — why does the company attract ordinary people, but not experienced investors?
  2. The requirement to pay an affiliation fee. Usually, the amount is 5 to 20 thousand Russian rubles. Scammers expect that hardly anyone will sue them for such a sum of money. But it depends on the specific pyramid, as some will happily accept millions of fees.
  3. Too big promises. The level of presentation is high, the site looks prestigious, the sellers are very professional and convincing. But at the same time there is no specifics, that is, everything is beautiful, but vague, and it is not clear where the profit comes from.
  4. Impossibility to obtain such information about the organizers as the availability of a license and permit to conduct financial activities.
  5. Explicit or implicit suggestion to invite acquaintances, relatives and friends in the project. A reward is promised for each new involved participant. It can even be possible to take an optional course on neurolinguistic programming and special psychological techniques.  
  6. The organizers' persistence borders on obtrusiveness. The potential participant is convinced that the decision must be made right now, otherwise everything will not be so profitable.

In fact, there are many other signs of pyramid schemes as well. But even this list is enough to distinguish them from real projects.

If you do not want to become a victim of such scams, you should pay attention to more realistic ways to make money. For example, trading currencies, cryptocurrencies or securities through legal brokers that have already proven themselves well in the financial markets.

To choose a reliable company, you can visit a special section on our website, where information about our partners is presented: Time-tested brokers

What are the types of pyramids schemes

The classic pyramids schemes were invented at the dawn of the 20th century. And they plenteously exist to this day.

Single level pyramids schemes

This scheme was devised by Charles Ponzi from Italy, who initiated a fraudulent project in 1919.

pyramid finico

It works according to a simple principle:

  • the initiator promises high profits and attracts investors;
  • first investors receive a significant income from newcomer fees. 

In this case, interest is charged regardless of whether the investor attracts new participants or not. As soon as financial injections cease to cover obligations to investors, the initiators disappear with the money.

A notable example of such a pyramid scheme in Russia is the MMM organized by Sergei Mavrodi.

Multi-level pyramids schemes

In this type of financial pyramids, each investor must attract new investors to generate income.

pyramid fraud

In this case, upper level participants can participate in the distribution of contributions. They have such an opportunity while new levels are being formed, and the number of investors is increasing exponentially.

A similar principle is often used in network marketing. But it differs from pyramid schemes in that it has its own product for sale.

Matrix pyramids

This scheme differs from the two previous ones in that it can exist for a fairly long time due to a more complex structure.

pyramid fraud

It is not enough for a participant to make a contribution and attract people to the first line. They must wait some time for the second level to fill.

For example:

  • three personally invited participants must be enrolled in the first line;
  • each invited participant must invite three more participants.

When the required number of investors is achieved, they are transferred to the second level. And the lower part is divided into three matrices, each of which contains 4 people. This "incomplete cell" must be filled with the set number of participants (9 people).

When this happens, the process is repeated again: dividing in half and recruiting the required number of participants. The investor can receive a reward upon transition from level to level.

How the large financial pyramid Finico collapsed

The financial pyramid Finiko, organized in Tatarstan, has been actively developing in Russia since 2019. This organization has been accepting deposits in cryptocurrency. They had their own token Cifron (CFR), which could only be bought with Bitcoin or USDT. And judging by the data recorded in the blockchain, today they have about $350 million.

It is about 26 billion Russian rubles. This figure exceeds the fees of any other similar structure ever operated in the territory of the Russian Federation.

At the beginning of June 2021, the Bank of Russia found that the investment company Finiko has clear signs of a financial pyramid. Also, even before its collapse, various revealing videos and articles about this organization were published on the Internet, but the investors almost did not react to this information. And as early as July 2021, Finiko stopped paying interest on deposits.

pyramid fraud

One of the organizers and the frontman of Finiko, Kirill Doronin, offered investors an income of 30% per month. He explained that the company earns such a profit by operating in large markets, such as:

  • Moscow Stock Exchange.
  • Chicago Mercantile Exchange.
  • Major cryptocurrency platforms.

The pyramid itself was presented as an automated profit generation system.

But in addition to the possibility of working with financial markets, there was multi-level referral program, and people received money by bringing other participants. Moreover, each referral had to contribute a certain amount as an investment. In fact, this was the main and only source of income for Finico.

Today Kirill Doronin assures the victims that the problem with payments is temporary and the situation will eventually normalize. At the same time, a demand was made for investors to confirm the legality of the origin of funds invested in Finico. All this looks like a clear attempt to complicate the process of returning deposits.

According to some sources, Kirill has already received citizenship in Turkey, which indicates his intention to leave the territory of Russia. Doronin also said that other founders are driving out him from the company. But they, in turn, claim that they have always only followed Kirill's instructions and have no equal shares in the company with him. That is, they do not have the authority to dismiss anyone from Finiko.

What the victims say

Various publications have already interviewed some of the victims of the collapsed financial pyramid.

For example, a resident of Perm, Victoria, said that she and her husband could not return 400 thousand rubles. According to the woman, at first, payments were made stably. They could pay without any problems on the loan, which was taken for investment in Finiko.

So the loan in the amount of 450 thousand rubles was paid off. Then the spouses took another 300 thousand rubles from the bank. This amount was also invested in Finiko, but the pyramid collapsed and payments stopped. As a result, taking into account the interest on the loan, Victoria and her husband owe the bank 400 thousand rubles. The woman says that they understood the inevitability of the collapse of the company. The question was when exactly this will happen. According to Victoria, it took her a couple of days to withdraw the money completely.

Chats of victims Finiko

If you examine chats of Finiko investors, you will notice that many of them still believe in the possibility of getting their money back. People ignore the obvious signs of fraud and the information from the Bank of Russia. They believe that the pyramid is a large investment company that just cannot collapse.

pyramid fraud

But most investors write about their huge losses, already realizing that they will not be able to return the money invested.

pyramid fraud

Andrei Kuzmenko, director of the Debtor Protection Center, predicts an increase in the number of such appeals. He also noted that the victims of the pyramids are characterized by a strong debt load. People want to get as much money as possible and borrow large amounts of money, but as a result, investors find themselves in extremely difficult financial situations and are experiencing severe stress.

Conclusion

Despite the fact that pyramids schemes are recognized as illegal in most countries, they will appear again and again, as long as there are people willing to believe in a miracle and give money for the promises of the mountains of gold. But fortunately, such fraud can be easily recognized. This only requires knowledge of the principles of real investments and paying attention to the specifics of projects.

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