Pyramid Schemes

A pyramid scheme is a type of scam that promises the victim a fast and substantial return on an investment of money which is paid to the person ‘above’ them in the pyramid. The victim is also required to recruit a number of people to be ‘beneath’ them in the pyramid, in turn collecting their payments and passing them up the pyramid.

 The risks

  • Losing hundreds or even thousands of dollars to a scam, with little chance of your money being recovered.
  • Causing family members, friends or colleagues to lose money and in the process, destroying trust and your relationship.
  • Conviction and punishment by a potentially substantial fine and a criminal record.

Setting up or operating a pyramid scheme is illegal in Tonga. Anybody found to be doing this will be subject to the full force of the law.

Unlike with multi-level marketing (MLM) schemes, no goods or services are supplied in return for the payment, even though these may be promised under the guise of travel clubs, gifting programmes and cryptocurrency reward schemes, amongst others. For this reason, pyramid schemes invariably collapse after a period of time, with only one or a few participants at the top of the pyramid likely to make any money, and the other participants losing all the money they have put in.

They generally rely on exploiting people’s networks of family, friends and colleagues, and victims are pressurised into participating with not only the promise of a fast return on their ‘investment’, but the premise that they would be doing their acquaintances a disservice by not getting them involved. Many perpetrators use face-to-face meetings in cafés, takeaways, churches or prospective victims’ homes to recruit new scheme members. These days a lot of schemes are advertised and passed on via social media, text/instant messaging and email.

In Tonga and other Pacific countries, a number of people have been scammed by their own family members and friends living and working in Australia and New Zealand, making the scam even more convincing, often supported by official-looking contracts and other paperwork.

Some schemes have been set up under the pretence of offering victims of other, collapsed schemes the opportunity to recoup their losses.

How to spot and avoid a pyramid scheme

  • Any approach requiring you to recruit people in order to make money, with no real product or service involved, is probably a pyramid scheme and should be avoided, however convincing it seems and however much you need the money.
  • Do not consider joining any financial scheme unless it is registered with the government.
  • Consider carefully before attempting to influence others into any investments or purchases.
  • If anybody attempts to recruit you into what you believe to be a pyramid scheme, report the incident to the police.

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