- 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 and participating in pyramid schemes is illegal in the Cook Islands under the Fair Trading Act 2008, Section 32, Part 2 (Unfair Practices) and if prosecuted, can attract a fine not exceeding $10,000 for an individual or $20,000 for a body corporate. The Fair Trading Act is administered by the Ministry of Internal Affairs.
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 the Cook Islands and other Pacific countries, a number of people have been scammed by their own family members and friends living and working in New Zealand and Australia, 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 Financial Supervisory Commission.
- 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 Cook Islands Financial Intelligence Unit online or by calling (682) 29182.