Understanding Pyramid Schemes
More on the Business in Motion Scam
by Robert L. FitzPatrick
A Pyramid Scheme is a fraud disguised to look like a business or an investment opportunity. There are laws against them because they deceive people and they inflict financial harm on the vast majority of all who fall into the schemes trap. The Pyramid Scheme design CAUSES the great majority to lose, while promising that all have a real chance to succeed. The money that is lost goes to the schemers at the top of the pyramid. Operating a Pyramid Scheme requires deception and causes much harm, but it can be extremely profitable to the schemers at the top.
The flaw in the Pyramid Scheme design is very simple yet often missed by consumers. To gain the promised rewards, every person who pays and joins must recruit others, at least two, but in reality many more, in order to get the promised financial rewards. For all to recoup their investment and gain the promised rewards the chain must always grow. The scam is therefore really a math trick because it is impossible for the chain of recruits to continue growing. The actual number of possible recruits is limited, but the plan requires unlimited expansion. So most will lose their money because they will never find enough recruits. They fail not because they did not try or they lacked talent. They fail because the scam requires what cannot be done continuous, unlimited recruitment.
And, remember, in order to try to make money in the doomed plan, each person must pay money. So the schemers at the top make money each time a new person joins. When Alan Kippax said no one can lose, he should have said that he and the few top recruiters who run the meetings cant lose. All the others have to lose.
Even before the recruits run out, we can see that BIM, and recruitment scams like it, are fake opportunities. You get your money only after moving from the 4th level at the bottom, to the top. When you get money, there are 14 people below you in your 4-level group (2+4+8) who paid in but have not gotten paid. So, we know right from the start, that less than one in ten can ever be paid.
BIM is a money transfer. Eight people give money to one. As the scheme proceeds there will ALWAYS be more than 90% waiting to get paid in the lower positions. In the end, at least that many 90% must lose. Actually, the number of losers will be much higher than that, since many people will never find enough recruits in their small towns or neighborhoods long before the overall scheme would collapse.
Q. What were the main clues you saw at the BIM meeting that led you to conclude BIM is an illegal pyramid scheme?
A. Lets see, the first was probably the claim that everyone could make $100,000 quickly! I asked myself, Where does the money come from? After all, were in a Recession. Moneys tight. How is BIM able to pay all these people a hundred thousand dollars? As the presentation later revealed, it was not payment for selling at all, just a transfer of money from later investors.
Then, there was the product. A travel club membership for $3,200? Offered by an unknown company? In a field of great competition and many very good online free travel services? It did not add up. Of course, as Marketplace later revealed, the product is actually worthless. Its a fake.
I also asked, where are the customers? The presentation stressed just recruiting other salespeople (BIM members). They called BIM members salespeople and said they were earning commissions but there were no customers. Each salesperson just recruited other salespeople. That could not be a business.
Then came the explanation of the pay plan. They told us that they would pay $5,000 commission on a $3,200 sale. What? How could this be? As the presentation soon revealed, this was not a payment at all. It was just a transfer of money from the later recruits to the earlier ones. No one but a magician can pay more in commission that the product actually costs. Right?
And then, there was the sleeping money. Yes, BIM claimed that you earned money while sleeping. This was for those who made it to the top and then continued to collect money as vice-president. Where was that money coming from? Well, it came from people who joined later.
Finally, there was the promise that nobody can lose. Anyone who tells people in business that they cant lose, is surely lying. Nothing in business is certain or guaranteed. In fact, as the presentation later revealed, nearly everyone MUST LOSE!
So, it became obvious that this was a scam. The promises of money depended on an endless chain of recruiting that had to keep expanding (8,16, 32, etc.) which is impossible. The promises of money and you cant lose were lies, except for Kippax and his top promoters who would get the money that all the others would lose.
Q. But, how can the chain be endless if there are only four levels?
A. BIM investors move through four levels to the top and then get money from the last ones to join at the bottom. But now the people at the bottom level also need four levels below them. The chain does not end at four, it just operates in segments of four. All the new investors must also move up four levels to get paid. So, the recruitment process must keep going for those at the bottom to get their money.
Each level of expansion requires that the bottom level must double. The first group had 8 people at the bottom. When it split, 16 more were then recruited. In reality the 16 new people are now the 5th level. After the 16 come in, another split occurs and 32 must be found, which is the 6th level, and so on. So, the chain is endless and the bottom level keeps doubling every time there is a split. For one to get paid, a split occurs and the bottom level must double again.
Use your calculator to see how many times 8 (8,16, 32, 64, etc.) can be doubled before you surpass the population of Canada. You will be amazed how quickly it happens.
Q. Wait a minute! Mr. Kippax said that surpassing the population of Canada is impossible and that Jesus Christ was a network marketer and in 2,000 years, only 1/4th of the worlds population was converted!
A. Yes, it is true that surpassing the population of Canada with BIM investors is impossible. That is because collapse occurs much sooner. In reality, only a tiny fraction of the adult population of Canada is in the market for a $3,200 travel club membership, even one that had real value. What is the size of the total market? Whatever it is, it is very limited, but the expansion plan for BIM, on which it makes its income promises, is unlimited. Thats where the Big Lie comes in. Most people and many already have will fail to find enough new recruits very soon and will lose their money.
Q. Cant recruitment continue forever if those that get paid re-enroll? Also, what if BIM offers new products? Wont that keep it going?
A. No, re-enrollment will not add enough people to prevent collapse. Not even close. If the top person reinvests, instead of 16 being needed in the next level, 15 must be found. Because so many must pay in money for one to make money, reinvestment does not change the doomed plan enough to make a significant difference. Collapse and loss will still occur for nearly all. Similarly, if everyone who made money came back in to buy a new product, the same percentage of investors to those getting paid would remain. The product does not matter, it is the math that dooms the investors. Pyramid Schemes are frauds that hide behind products. The products are just used to camouflage the money transfer, that is, to make it look like a sales business.
Q. Arent all companies pyramids? Dont big companies have levels just like BIM?
A. All companies have levels, but the money for those at the top in real companies does not come directly from those in the levels below. It comes from customers who are outside the chain and not part of the income scheme. The real company earns money by delivering a product or service to real customers. A real company can operate continuously without growing because it is exchanging value with its customers. It is sustainable. BIM is not sustainable. It collapses when recruitment of new investors slows or stops. It is not delivering value, only transferring money from many to a few.
Q. How can BIM be a pyramid if it sells a product?
A. BIM has salespeople, but not customers. The salespeople are really investors. They buy the product as a ticket to have a place on the recruitment chain. Virtually no one would buy the BIM product if not for the income promise, which is false. Indeed, no one does buy the BIM product except those hoping to make money on the chain. So, BIM uses a product to cover over a money transfer scam. To be a real company, most BIM salespeople would be selling BIMs travel club memberships to real customers, not recruiting other salespeople in an endless chain.