The financial pyramid – or principles of functioning of pyramidal schemes in Ukraine.

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Financial pyramid. What is it?

First of all, you should understand what is the financial pyramid and what types of it are there?

The researchers of this problem, for example Y. V. Yarmolenko, identify several types of pyramid schemes:

  1. Pyramid scheme “Deposits /payments in order to obtain a large percentages”. Under this scheme there is an accumulation of funds due to the payments of participants who receive high percentages. But usually, the participants receiving percentages only at the initial stage and then the pyramid terminate its activities and the participants remain without percentages, and without their former payments.
  2. Pyramid scheme “Purchases in a Group”. Under this scheme, a fund of participants is created and for their payments, according to the idea, must be purchased any product such as a car, apartment, etc., or the amount of money for which this product can be purchased. As a result, the participant making 10-15 payments, and sometimes full payment, and then receives neither the desired product nor his own money.
  3. Pyramid scheme «Online Broker». This scheme is about online trading in the Internet at currency and stock exchange brokers. “Trading” is usually performing via special electronic systems, or through a broker. A person transferring his own money to a special account. As a result, at the very beginning a person gets bonuses to a special account, while he cannot get these funds for a certain period of time. If the participant decides to leave trading session ahead of schedule, then, according to the terms of the contract (if there was any), he loses either part of his money, or completely all of his transferred payments.

According to the Part 3 of Article 19 of the Law of Ukraine “About Protection of Consumer Rights” it is forbidden, like those that are misleading: education, exploitation or promotion of pyramid schemes when the consumer pays for the opportunity to receive compensation provided by attracting other consumers to such a scheme, rather than through the sale or consumption of products. This means that the functioning of the pyramid schemes in Ukraine is forbidden. Unfortunately, this phenomenon continues to exist and the number of pyramid schemes is growing every day.

Fraud. What types are existing?

The most common type of fraud in Ukraine is the financial pyramid “Cheap Credit”.

In order to create this kind of financial pyramid, in the very beginning an enterprise is organized, it can be of different types, usually it is PE (private enterprise) or LLC (Limited liability Company), but there are also other organizational forms of them. As a rule, such enterprises do not engage in any real business activity (they do not produce any products and do not provide any services), but exist only via payments of their customers.

After that, a scheme is being developed, according to which potential participants are invited to receive products or services, or even just the right to receive such products in return for their regular compulsory payments. Such scheme drawn up by the contract in most cases.

Further, to attract participants, products are offered at a low price (car, apartment, etc.) or on “very favorable terms” (credit, interest-free loan, etc.).

When participants of the financial pyramid beginning to pay, these funds are not used to conduct normal financial activities of an enterprise whose purpose is to generate income, but to enrich the founders of these schemes by redistributing funds obtained in the course of the activity of such pyramid. As a result, a small number of participants, usually those who were among the first, get the result they expected, and the rest, as a rule the majority, remain with nothing.

Analyzing the paragraph 7 of part 3 of Article 19 of the Law of Ukraine “About Protection of Consumer Rights” giving us a conclusion that the concept of “pyramidal scheme” in the understanding of this norm has the following mandatory characteristics:
a) payment for the possibility of receiving compensation by the participant;
b) compensation is provided by attracting other consumers of the scheme;
c) the absence of a sale or consumption of the goods.

Fraud on the Internet

Internet fraud has become increasingly widespread due to the huge popularity of the Internet. All listed criteria for detecting financial fraud can meet everyone and therefore you need to be vigilant, analyze and take into account all the risks that may arise if you agreeing to a “profitable proposal”. At least read the contract you sign and demand the appropriate license. Or carefully read the terms and do not put a tick “I agree” automatically as most users do if you order a product or use an online service since, according to the law, the activity of providing any financial services that involves the attraction of financial assets from individuals requires a license or a permit for a certain type of activity.

Also, quiet often such actions of founders of pyramidal schemes can be considered as Fraud under Article 190 of the Criminal Code of Ukraine.

And if, you already get into such a situation, you should turn to specialists who will be able to provide you with professional legal assistance and competently prepare a claim for court.

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