If you think only ignorant people get taken in money scams, think again. Consider that Bernie Maddoff stole hundreds of milions of dollars from people who were smart enough to make hundreds of millions of dollars. In fact, he used one of the oldest scams in the book - the Ponzi Scheme.
In a Ponzi scheme the scam artist promises huge returns to an initial group of investors. He then uses money from the next group of investors to pay off the first group. Then the third group of investors to pay off the second group, and so on, until the whole thing collapses.
Another popular scam is the Pyramid scheme.
The essential idea is that when you buy into the Pyramid scheme, you get the right to sell a product (cosmetics, vitamins, whatever) along with the right to the franchise. So you are at the top of your pyramid.
If you sell the franchise to two more people, you get a piece of every product or franchise they sell.
And if those two people sell a franchise, you get a piece of every product or franchise they sell as well, until you have tens or hundreds of people selling franchise and products that provide you with a cut.
Sounds great, right?
The problem is that most Pyramid schemes don't really have a product to sell. They just sell the franchise, which gives others the right to sell the franchise.
Saturation occurs very quickly, since most of the franchises are sold to friends and family.
Oh, and without a real product to sell, it's illegal.
When that 'someone else' sells a product or a franchise, you get a piece of the cut. And when the person that 'someone else' sells a franchise to sells a product or franchise, you get a piece of that as well.
Some network or multi-level marketing businesses, which sell real products, may verge on the borderline between "smart" and "scam". However, legitimate network or multi-level marketing businesses can be distinguished from illegal pyramids by their compliance with these three criteria:
1.Substantial sales of products or services to end users 2.Commissions paid only on product usage, not on new enrollments 3.Company buys back the inventory of terminating participants