Sept. 21, 2005 — The Department of Licensing and Consumer Affairs has received information regarding a pyramid scheme operating in the Virgin Islands, which promises a return of $40,000 on an investment of only $5,000, according to a press release issued Wednesday.
According to the DLCA release, pyramid schemes promise investors large profits based primarily on recruiting other investors to join the program and are not based on profits from any real investment.
Pyramid schemes start with just a few people, and are generally spread by word-of-mouth, said DLCA Commissioner Andrew Rutnik.
The release also notes that a lack of retail sales is another red flag that a pyramid scheme exists, adding that the pyramid revolves around continuous recruiting whereby the promoter collects payments from a stream of people, all promised the same high rate of return on their short-term investment. When the scheme collapses, most investors find themselves at the pyramid's bottom, unable to recoup their losses.
DLCA released a similar warning six months ago about a pyramid scheme called Easy Wealth by Design.
DLCA and the Federal Trade Commission are cautioning consumers about clubs or programs promising quick money for recruiting new members.
Rutnik said it is not always easy to catch those at the top of the pyramid, often because those people are not from the Virgin Islands. If they are caught, they could face criminal fraud charges.
The department found out about this scheme when they received calls from residents asking for advice. Rutnik said people in the department always tell callers that the scheme is a very poor investment.
For more information, visit the FTC Web site or call the DLCA's Alli J. Paul at 773-2226.
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