Less than two weeks ago someone I follow on Instagram who I met at an event last summer posted something about a loom to their stories.They detailed how they were looking to recruit people to add to their circle and even showed a graphic to explain how it all works.
Below are snippets from a BBC article I read recently:
-The scheme asks participants to pay £160 up front with the promise of making a return of eight times that amount.
-The scheme relies on you then recruiting other people to join up and to part with their money as well.
For everyone in the scheme to make a profit, though, there needs to be an endless supply of new members.
In reality, the number of people willing to join the scheme, and ultimately the amount of money coming into the scheme, will dry up very quickly.
-“In this one 64 people had to pay in to get the top payout – that’s about £10,000 you need to send to a fraudster between 64 people. So it’s pennies for a fraudster to send back £1,000 to one person, they’ve still made £9,000.”
And so the point is to be recruited and then recruit. Straight away I knew this didn’t sound right. It was a one off payment of £25 to join which I suppose was smart because it makes it attainable to the common man.
However, what first came to my mind was a Ponzi scheme. It’s something I’d forgotten the definition of but what I did remember was an individual getting rich and promising the same for others, along with fraud, prison and the Wolf of wall Street.
I’d almost forgotten about the loom circle post until I saw someone tweeting about it and the next day the person that shared it on their stories shared it again.
There was no part of me that wanted to join but what I did do was research because I knew there would be articles from victims of the loom circle warning others against it.
This whole thing is a pyramid scheme where people make money from recruiting new people. No recruits, no money.
It’s advertised as an easy way to make money and of course there is money to be made but it’s the people at the top that gain.
The difference between this and a ponzi scheme is the illusion. With a ponzi scheme you get money from people and decieve them into beliving you’re investing their money then recruit money from more investors to pay the ‘return’ to the other investors. A popular example is Jordan Belfort whose book inspired the movie ‘The Wolf of wall street’ movie.
I don’t support these kind of schemes either way but at least with the ponzis scene the people you’re taking money from believe you’re legit.
With this loom thing once you give it some thought you realise that it’s model of success is built on having infinite people to recruit. And so how does the last person to join make money?
Of course a 7+ billion person pyramid scheme would never happen. But our circles of who we know only span so far and circles of contacts will overlap. All of a sudden it becomes a race to recruit.
By law in a lot of places these schemes are a type of fraud because you aren’t actually investing in anything. It’s not sustainable and eventually the person at the top after collecting x amount of money will disappear and the scheme will collapse.
The people that gained nothing from it will want their money back and trust will be lost.
The recruiters offer the promise of financial reward but it’s so much more than that, it’s psychological. Factors such as greed, likeability, authority, reciprocity and consensus all contribute to how the scheme manages to work (The psychology behind pyramid schemes).
Likeability is a great example because we’re more likely yo trust the people we like or be convinced by them.
Granted participants can make money from pyramid schemes but why not play the long game. Start a business or learn to invest in stocks. Provide a product or service that people are willing to pay for.
A quote from Seths blog post Are you being Manipulated?
“if you knew what they know, would you be happy to do what they’re asking?”
It’s a question worth asking.
The answer will probably be no, it’s only a small group of people that can say with certainty that they’re okay with convincing family and friends to put money into a scheme that is a form of fraud by dressing it up as a great business opportunity.