Pyramid Schemes Frauds - Advisory Warning No. 1 of 2012 (2012-01-23)

Summary

This is a public investor advisory issued by the BVI Financial Services Commission warning about pyramid scheme frauds and similar investment scams. It explains how pyramid schemes work and how to distinguish them from legitimate business or merchandising structures, but it does not impose any new regulatory requirements on licensed entities.

• No legitimate product or service: Returns are not tied to the sale of any actual product or service.
• Recruitment-dependent payouts: Participants only receive a financial return after successfully recruiting new members.
• Focus on recruitment, not sales: The scheme emphasizes earnings from recruiting rather than marketing or selling products.
• Eventual collapse: Because the model depends on ever-increasing recruitment, it is unsustainable and collapses, with later entrants losing their money.

The FSC directs the public to its website for further guidance on evaluating investment opportunities to avoid becoming a victim of fraud. The warning is issued under section 4(1)(l) of the Financial Services Commission Act, 2001, which empowers the Commission to issue public advisories, and does not create any compliance obligations for regulated entities.