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HSFPP Weekly Update # 84—New Twist to Pyramid Scheme

Message from Flashman: Many consumers today recognize the typical illegal Pyramid schemes in which people are recruited and must pay money to join. Those already in on the scheme must recruit more people to make it profitable; that is, profits depend on bringing more people into the scheme and not on the provision of any real goods and services, or of any true investment. Pyramid schemes benefit those who get in early and tend to collapse before anybody else can recoup their money.

This week’s article In the New$ describes a variation on this scheme involving popular products such as iPods, cell phones, and video games. Teenagers are easy prey to this new type of pyramid scam as many of them are frequent users of eBay and may have had few problems doing business on the Internet. In fact, this scheme looks enough like business as usual that many unsuspecting consumers could get pulled in.

Website Pick of the Week:

http://www.consumerworld.org

This site provides consumer news, product reports, and links to agencies and resources for consumers. Once you sign up, you will receive a weekly e-mail featuring top-notch consumer information. Consumer World is particularly useful for county agents who write weekly mass-media stories.

Suggested Activity for Teachers:

Use our publication, Let the Consumer Beware! A Guide to Fraud and Rip-Offs (FAM-RHF.116a), which you can find on our website:

http://www.ca.uky.edu/fcs/FACTSHTS/FAM-RHF.116A.pdf

Have students answer the questions below. If possible, provide Let the Consumer Beware! as a handout so students can use it to answer the questions and then take it home to their parents. Our goal is not only to educate students, but also their parents.

In the New$... eBay Scam Uses iPods as Bait

“A search for ‘iPod’ on eBay yields a couple thousand listings for the digital music player and accessories, but beware; hundreds of the listings are inducements to join pyramid-style scams.

“EBay is swamped with new ‘matrix’ schemes, which appear to be legitimate buyers clubs but are in fact variations on classic pyramid scams, which are outlawed around the world.

“In most cases, eBay shoppers are offered hot products like an iPod, a game console or a cell phone at an incredible discount, say for $40 or $25.

“The eager bargain hunter is told not to bid [emphasis mine] on the item, but is directed instead to [other] sites ... [that] offer iPods or cell phones as free gifts when products like CDs or eBooks are purchased.

“The catch is that buyers only get their free iPod after more people sign up. When making a purchase, the buyer's name is added to a list. As new members join, names are shuffled up the list. When they reach the top, the iPod is dispatched.

“To speed up the process, buyers are often encouraged to recruit new members to join the scheme. And that's where all the eBay posts come from: Victims are using eBay to recruit new members.”

So far, the Federal Trade Commission has not acted against this type of scheme; but, according to James Kohm, an FTC attorney, this would be considered a classic pyramid scheme and would clearly be illegal. So be careful not to get involved.

http://www.wired.com/news/culture/0,1284,62226,00.html?tw=rss.TOP

Student Questions:

1. What usually is the case when the price for a product or service sounds too good to be true? (Can the product usually be purchased at that price, or are there other conditions to meet first?)

2. Where can you go to check out the legitimacy of a business?

3. With the Internet, a variety of fraudulent activities and rip-offs can occur. What can you do to keep from having your identity stolen and being ripped off?

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.