1. Pyramid schemes: what they are, why they are unethical, and why they matter in Utah. BUS 1040-Ethics at Work
By Robert Mejia

2. Introduction In this paper, I will:
first explore what Ponzi schemes are, and what makes them unethical to fall for.
explore why Ponzi schemes seem to matter the most in the state of Utah and report current events surrounding Ponzi schemes.
present my findings on how to avoid Ponzi schemes, and what to look for in unethical scams.
share the results of at least one interview with an expert who has a greater knowledge of Ponzi schemes and may have had previous experiences with Ponzi schemes, and how their advice may explain how these unethical scams seem to grow in Utah.
present my Conclusions and Recommendations.

3. Findings What are Ponzi Schemes?
According to the U.S. Securities and Exchange Commission (2013), a Ponzi scheme is "an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors." Ponzi scheme organizers promise to invest funds in opportunities that provide high returns on investment. The scheme attracts people through promised payments to early stage investors. Ponzi schemes usually fail though because they require a consistent flow of money from new investors to continue, or there are little or no legitimate earnings for recruiting new investors. Most Ponzi schemes eventually fail as soon as the money falls apart for investors, and while they are set up as ethical legitimate businesses, they are unethical wrong business opportunities.  

4. Why they are unethical?
People continue to fall for Ponzi schemes even though they do not work because:
the idea is to earn high investment returns with little or no risk.
no recruiting may be necessary to receive payments.
the promoter generally acts directly with all participants.
payments come from new participants.
the collapse of the scheme is slow if existing participants reinvest money.

5. Why Ponzi schemes matter in Utah?
According to the Consumer Awareness Institute (2013), Ponzi schemes seem to matter the most in Utah as it is discovered that "Utah leads the nation in density of MLM companies headquartered in the state; i.e., there are more companies based in Utah per capita than in any other state in the country." According to the Consumer Awareness Institute (2013), Ponzi schemes in Utah may be popular for a number of different reasons. One of the problems is that the Direct Selling Association, DSA, bypassed a cleverly worded bill that nullifies Utah's Pyramid Scheme Act. Many officials in Utah lack the resources and the will to cope with pyramid schemes. Utah tax professionals know who is making money or not making money with pyramid schemes. According to the Consumer Awareness Institute (2013), in a case study and interview, Dr. Taylor has studied and tested one pyramid scheme and notes that:
Compensation plan and extensive misrepresentations for several years and reported the same to law enforcement at both the state and federal levels. But Nu Skin has demonstrated great facility in dodging all legal challenges. Company officials simply settle legal claims and write them off as a cost of doing business. But the damage to victims world wide has never been satisfactorily resolved.
They are just some of the reasons that pyramid schemes seem to matter the most in Utah because Utah is highly targeted by them, but it needs to stop.  

6. Top Utah schemes
According to the Salt Lake Tribune (25 June 2012), Federal regulators accused a "Utah businessman of running a Ponzi scheme that took in $100 million from 600 investors while guaranteeing 12 percent returns on real estate investments." Utah has been hit with a series of Ponzi schemes in the past, involving millions of dollars. Several SEC court filings state that Palmer told investors about guaranteed annual returns. In 2009, there were $18.6 million from new investors and some of it was used to make payments to early investors. In 2010, there was $22 million from new investors and some of it was used to pay early investors. Clearly, National Note had violated rules, and this real estate scheme is one of the top Utah pyramid schemes. Pyramid schemes like the real estate investment one and Nu skin shows that Utah has a serious problem with pyramid schemes, and it has to stop.

7. About some of these Utah schemes
Solavei: $49 a month unlimited phone service, for every three people you refer you get paid $20 a month. There have some complaints though about some referrals not getting approved, poor customer service or phone service, and other scheme related complaints. Few actually succeed. Popular in Utah.
Nu skin: Horrible complaints about getting people to pay to sign up and continuing to spend money on expensive products. Complaints about compensation model, MLM network marketing tricks, products, and so forth. Few actually succeed. Popular in Utah.
Vector Marketing CUTCO Corporation: Network referral marketing sales position money making pyramid scheme. Only those at the top and those that sell well and get referrals make money. Complaints about scheme related activities. Few actually succeed. Popular in Utah.

11. Interview with Vector Marketing sales receptionist telemarketer
Do you feel that Vector Marketing is a pyramid scheme? What would you say sets it apart from a pyramid scheme?
I do not believe that Vector marketing is a pyramid scheme. It is a legitimate business opportunity for anyone looking to enhance their customer service and sales skills. It is a great company to work for and definitely cannot be associated with a pyramid scheme. We offer great products, jobs, and scholarships for college students. Anyone can succeed with this company if they really try to. It is true that you need to set up appointments, do your best to sell, and get referrals, but this is not a pyramid scheme.
How do you feel about those at the bottom of the corporate ladder when they first start within the company making outside sales and trying to get referrals? Do you ever feel like the sales pitch is getting old or that it is hard to get more referrals?
I truly believe that anyone can succeed with Vector marketing if they really try to. There are some who are doing really well at the bottom, and managed to get many referrals. You can never run out of referrals. There will always be a way of getting new referrals. The sales pitch is not getting old at all because there will always be someone willing to listen about our products and services. There are some that continue to exceed and grow within the company even at the bottom so I am not worried about running out of referrals or if the sales pitch is getting old. Wal-Mart has its failures too like any company. We are not the only company that makes mistakes. Wal-Mart is an example.

12. Conclusion
The article from the Salt Lake Tribune (25 June 2012) may explain how far Utah pyramid schemes will go just to take away money from investors. High Point Enterprise (2013) also posted an article that explains how pyramid schemes are unethical, and has an interview story of Troy Olsen who fell for one of these pyramid schemes. It is justifiable for those leaders who are involved in Pyramid schemes to be punished for their actions as in the case of the victim story of Troy Olsen who lost $10,000 or so to Zeek Rewards. The leaders of pyramid schemes deserve to have the government shut down their unethical business practices. There are still continuous trends of Ponzi related schemes, and many reasons that cause Utah to be most targeted by them. Business practices and opportunities though are supposed to be ethical, legitimate, and provide real lasting returns on investment. A real business opportunity will continue to grow, and provide a product or service that everyone can benefit from.

13. Recommendations
My recommendation is to again look for the signs of Pyramid schemes in order to avoid them. According to Ponzitracker (2013), “A Utah man agreed to plead guilty for his involvement in two separate Ponzi schemes - while on parole for a previous conviction for a third Ponzi scheme - that took in more than $30 million from investors.” Sometimes it is best to wait until the Ponzi scheme is over, and collapses before investing any money into it. One of the signs or red flags to look for is whether they are recruiting new people from the bottom to pay people who are at the top of the Ponzi scheme. People fall for these unethical scams with promises of high investment returns with little or no risk and delayed payments, and these are signs that we need to avoid Ponzi schemes. Because the government requires investment professionals and their firms to be licensed and registered, it is best to avoid unlicensed individuals and unregistered firms. Account statement errors or information with reviewing paperwork and information about investment in writing is a red flag sign that you are dealing with a Pyramid scheme. That is an issue because some online scams may claim to have paperwork and investment information displayed on their site, but that does not mean that it is legitimate paperwork, or worth the time, and investment. So my advice is to make sure that you know who or what you are dealing with, and avoid Pyramid schemes at all costs. Avoid overly consistent returns on investment, and other red flag signs that you are dealing with Pyramid schemes to invest time and money more wisely.

14. Sources Consumer Awareness Institute, Last modified April 24, 2013.
High Point Enterprise, Last modified March 5, 2013.
Ponzitracker, Last modified April 24, 2013.
T., Harvey. Published June 25, 2012.
U.S. Securities and Exchange Commission, Last modified April 24, 2013.