Staying safe · Module 2 of 4
When something smells wrong
Ponzi and pyramid schemes, misleading numbers, fake investing apps, and services built to be hard to cancel.
Key terms in When something smells wrong
- Ponzi scheme
A Ponzi scheme is an investment fraud in which supposed returns paid to earlier investors come from money contributed by newer investors rather than from real earnings. Organizers typically advertise high returns with little risk. Because there is little or no legitimate profit behind the payouts, the scheme depends on a steady flow of new money and tends to collapse when recruitment slows or many investors ask for their funds back.
Source: U.S. Securities and Exchange Commission, SEC Enforcement Actions Against Ponzi Schemes
- Pyramid scheme
A pyramid scheme is a business model in which participants earn money mainly by recruiting other people, not by selling products or services to real customers. New recruits often pay fees or buy inventory, and that money flows upward to people who joined earlier. The structure cannot be sustained, and the Federal Trade Commission treats it as illegal, unlike legitimate multi-level marketing built on genuine retail sales.
Source: Federal Trade Commission, Multi-Level Marketing Businesses and Pyramid Schemes
- Affinity fraud
Affinity fraud is investment fraud aimed at members of an identifiable group, such as a religious, ethnic, or professional community. The promoter is, or pretends to be, a member of the group and uses its shared trust to spread the offer, sometimes through respected leaders. Many affinity frauds are built as Ponzi or pyramid schemes, which means early participants are paid with later participants' money.
Source: U.S. Securities and Exchange Commission, Affinity Fraud
- Dark pattern
A dark pattern is a design choice in a website or app that steers or pressures people into actions they did not intend. Regulators have described examples such as hidden fees revealed late in checkout, fake urgency, and subscriptions that are simple to start but hard to cancel. The term covers interface tricks that undermine a person's ability to make a clear and informed choice.
Every term on Lever is in the money glossary.
About this module
When something smells wrong is part of Staying safe, one of 15 subjects in Lever. It’s a short run of 6 lessons, about 15 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Staying safe
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1
Before you hand anything over
How to spot a scam, phishing messages, fake friends and “pay to get paid” offers, and what to do right after you’ve paid.
7 lessons -
3
When the deal is the trap
Legal deals designed to work against you, like rent-to-own and loans that hide their real cost.
5 lessons -
4
Locking it down
Two-step sign-in, safer payments, protecting your identity, and what you share online.
6 lessons
Try this module
It’s part of Staying safe. Lever will bring it to you when you’re ready, or you can go straight there.