Author
Bowtie Team
Updated on
2025-06-13
Disclaimer: This article is translated with the assistance of AI.
Pyramid selling is an illegal scheme that still surfaces today. Does it include multi-level structures in insurance sales? Join Bowtie for an insightful chat with a veteran insurance expert and scam exposer Bo Gor to uncover the truth.
“Hey, friend, I recently discovered a business opportunity and want to share it with you!”
Recently, if you hear someone say this to you, it’s time to be on high alert and “beware of scammers!” Because this is the classic opening line of pyramid scheme promoters, setting you up to fall into their trap. And with Hong Kong’s economy in a slump, these “business opportunity” scams are popping up everywhere in the market.
What is Pyramid Selling?
Pyramid selling, or Pyramid Scheme, works by recruiting new members as the main source of income. As for the products, services, or investment plans involved—they can include everyday items like skincare products, health supplements, aromatherapy, wine, various financial products, cryptocurrencies, or even obscure investments on some far-flung unknown island. You name it, they’ve got it!
The real focus of pyramid selling has never been the products—it’s all about the “pyramid” structure. Essentially, as an “upline,” you recruit “downlines” as distributors, and then profit from their “investments” through commissions. The more your downlines invest, the bigger the commission you rake in as the upline. And when your downlines bring in their own downlines, everyone up the chain benefits—it’s the industry’s way of saying, “You’re someone’s upline and someone else’s downline.”
As long as people keep joining as distributors, the game keeps going, much like musical chairs. However, since the products, services, or investment plans in pyramid schemes often have little to no real value—or might not even exist—the game always ends with a big bust. It’s just a matter of time before the bubble bursts, leaving a trail of disappointed victims with nowhere to turn.
Pyramid Selling vs. Multi-Level Marketing
Pyramid selling is illegal, while multi-level marketing is a legitimate activity. That’s why many scammers deliberately blur the lines between the two. The key difference lies in the source of income. If the income mainly comes from recruiting new members, it’s pyramid selling.
Classic Case: Madoff Ponzi Scheme
One of the most memorable pyramid selling cases in recent years is the Madoff financial scandal, involving a staggering $65 billion.
Born into a Jewish business family, Bernard Madoff was the mastermind behind the largest Ponzi scheme in Wall Street history. Since the 1960s, he’d been a big player in the U.S. financial world, managing various hedge funds with a mysterious allure. Starting in 1992, he rolled out this Ponzi scheme, promising investors returns of 10%-12% no matter if the market was up or down. The catch? It was exclusive to “insiders,” with a minimum investment of $1 million, and new joiners needed referrals from existing insiders.
The secretive investment strategy, high entry barrier, and steady high returns were the bait that hooked people into this pyramid selling scam.
In reality, this so-called foolproof strategy was just using new investors’ money to pay returns to the old ones, creating a never-ending loop as long as fresh funds kept flowing in.
The victims included American business elites, global institutions, and major banks. Among them were Steven Spielberg, the Hollywood director, Nobel Prize winners, HSBC Bank in the UK, BNP Paribas, Nomura Holdings in Tokyo, and others .
But the 2008 financial crisis finally blew the lid off this 20-year scam. With many investors needing to withdraw their funds and Madoff unable to attract enough new money or cover the payouts, the truth came out.
2 Tips to Avoid Pyramid Schemes
Whether it’s the century-old Ponzi scheme or the pyramid selling we encounter in everyday life, both exploit human greed and the desire to get something for nothing.
In pyramid selling, uplines recruit downlines using various psychological strategies and persuasive techniques, such as promising to improve quality of life, leveraging peer pressure, and creating a hype-filled group atmosphere to convince newcomers to believe in this “opportunity” and invest to become distributors.
To guard against pyramid selling scams, keep an eye out for these two types of investment plans:
- Investment Plans with Potentially Huge Returns
For instance, recent media reports highlighted a company selling chargers (commonly known as power banks) that claimed investors could enjoy stable and substantial returns—only for those promised returns to vanish into thin air. Similar incidents are all too common, so before investing in or starting any business, it’s wise to thoroughly understand the business model and assess whether the returns are realistic.
- Sudden Business Opportunities Introduced by Friends
At its core, pyramid selling relies on getting people in your network to invest and become downlines, so if a friend joins one, they might approach you with what seems like a great opportunity. In these situations, stay rational and analyze the deal carefully—don’t let friendship cloud your judgment and lead to potential losses.
Insurance Has Uplines and Downlines But Isn’t Pyramid Selling
Some jokingly say that insurance is a form of pyramid selling, but it’s not quite the same. Essentially, insurance agents can earn income by selling policies without needing downlines. However, it’s undeniable that some agents do recruit downlines to earn commissions and boost their income.
In traditional large insurance companies, there are sales hierarchies. Uplines handle recruiting and managing downlines, while the downline agents focus on selling insurance (essentially, doing the groundwork).
Uplines’ commissions aren’t deducted directly from the agents’ earnings; instead, they’re taken from an additional portion of the policyholder’s premiums. So, a significant part of what you pay in premiums actually goes toward commissions for various levels of insurance personnel.
Why are agents still earning commissions these days?
With the rise of virtual insurance companies, consumers can now learn about product features and terms online, and handle purchasing and claims themselves—making agents less necessary. By cutting out the middleman, insurers can reduce premiums and pass the savings on to you.
When we shop, we value transparency more than ever. Online insurance options provide that choice, letting you clearly see the details of your policy. You can even quickly estimate your premiums right now—give Bowtie’s premium calculator a try.
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