Over the past couple of weeks, Bulgarian classifieds websites have been full of adverts recruiting “credit consultants” for Dubai Investment, a company that says it would start giving low-interest loans come October. The name sounds serious, and ever so close to the Persian Gulf emirate’s government-owned companies, suggesting both wealth and reputable business activity all in the space of two words. In exchange for a small sum, you can be one, too, and you will get a commission for enlisting more consultants as well. Sound familiar?
So far, with its focus being solely on recruitment, it bears the essential hallmark of a pyramid scheme – money is being made by some participants from those they enlist as consultants, but, to use Investopedia’s definition, “no wealth has been created; no product has been sold; no investment has been made; and no service has been provided”. And it would not be the first time that a firm with a respectable name has offered Bulgarians a chance to make good money fast – just run a Google search on LifeChoice, Lex or M &I Utre (Bulgarian for “M & I Tomorrow”) and see how often the word “pyramid” will appear to describe them.
The company promises to start selling a tangible product (fixed-rate loans) in the future, in which case it would shift closer to a multi-level marketing enterprise, an undertaking that is not outright illegal in the way that pyramid schemes are, but that still does not erase some of the numerous questions about how exactly the company plans to carry out its lending operations in Bulgaria.
The debate about multi-level marketing, also known as network marketing, companies has gone on for decades in the West. There are too many grey areas in their operations to warrant repeated investigations by the US Federal Trade Commission (FTC), the country’s consumer protection and competition watchdog, into such businesses in the past, some of which have proved to be indeed pyramid schemes. FTC has had to deal with the issue since the 1970s, when it set the basic guidelines as to how to discern network marketing firms from pyramid schemes in the seminal case against Amway, and has faced a slew of new cases since internet became so widely available in the 1990s.
Nor is the “presence of a purported product or service”, in the words of former FTC general counsel Debra Valentine, proof that there is nothing shady going on. The FTC has “seen pyramids operating behind the apparent offer of investment opportunities, charity benefits, off-shore credit cards, jewellery, women’s underwear, cosmetics, cleaning supplies, and even electricity”, she told an International Monetary Fund seminar in the distant 1998.
Bulgaria, for all its negative experience with financial pyramids and their perpetrators, which were appropriately dubbed “pharaohs” in local parlance, after the fall of communism, has made no progress in legislating the tricky area of white-collar crime since then, nor do authorities show a great concern about it. In this respect, it is indicative that Bulgaria’s state institutions whose job it is to watch out against such schemes and nip them in the bud – the central bank, the securities regulator and the consumer protection regulator – all appeared to be roused from their late-summer slumber by a media investigation, even though the recruitment of new consultants, judging by online job adverts, has gone on for more than a month already.
Ultimately, though, the success or failure of pyramid schemes comes down to people willing to take part in them, regardless of any degree of harm that they might do to their fellow participants. No matter how regulated the sector is and how alert the watchdogs, pyramid schemes will exist, and occasionally flourish, for as long as there are people who want to get rich quick, and are willing to lie to themselves and others. Education can go a long way to teach consumers how to recognise pyramid schemes, but how does one go around eliminating the self-denial that is so often found in the swindled participants of a pyramid scheme?
