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Pyramid Schemes: How to Recognize and Avoid Them A pyramid scheme is an illegal and deceptive business model that relies primarily on recruiting new participants, rather than selling actual products or services. While these schemes may look like legitimate businesses at first glance, they are designed to collapse, often leaving the majority of participants with financial losses. Warning Signs of a Pyramid Scheme Be cautious if you notice any of the following red flags: Income is tied to recruitment, not product sales - You're told that your main earnings come from bringing in new members, not from selling products or services. Often, they downplay or ignore product sales entirely and emphasize, “The more people you recruit, the more money you’ll make.” Mandatory inventory purchases - You’re required to buy and keep a large stock of products, even if there's no real demand or you have no intention of selling them. You’re encouraged to buy things you don’t need or want - Whether ...