An investment opportunity presented to area residents has raised doubts about its legitimacy in recent days.
Local business owner Nick Xidis said he was invited to a presentation earlier this week at a private residence. Attendees were pitched with investing in Bitcoin, an online currency. Participants then have to recruit two additional people to invest, Xidis said.
Washburn University law professor Amy Westbrook said recruiting subsequent users is a telltale sign of a pyramid scheme. Kansas has a specific law that outlaws pyramid schemes.
“Any time you buy into a company where the profit doesn’t depend on the sale of the product, but on bringing in new investors, you are dealing with a pyramid scheme,” Better Business Bureau state director Denise Groene said. “It’s mathematically impossible for these set-ups to continue indefinitely. Eventually the pyramid collapses.”
Xidis said he didn’t want to see people get hurt by investing in something that wasn’t legitimate.
Using Bitcoin, whose value has rapidly risen, was misleading, he added. Westbrook said when something new like Bitcoin is used, it contributes to confusion. Groene said Bitcoin scams were big a few years ago as the currency became more familiar, but that the organization’s Scam Tracker hasn’t had a recent uptick in Bitcoin schemes.
Westbrook said people operating such schemes would be subject to prosecution. There is an array of potential enforcement agencies under federal and state securities laws and consumer protection laws. However it is unlikely that victims would be compensated, she said.
It can be hard for the public to differentiate between pyramid schemes and multi-level marketing companies, such as Mary Kay, which is legitimate, Westbrook said.
Groene suggested these tips for identifying a pyramid scheme:
- Be wary of buzz words. Certain phrases raise a red flag for an investment opportunity. Don’t believe anything that is…