How a Scam Feels Before It Fails

A few months back, an "investment plan" was pitched to us. Not by a stranger on Instagram. By someone my father knows, a colleague of his.

The plan was simple on paper. Put in some money, it gets locked for a few years, and every month you get a fixed percentage back. Bring your friends in and you get a referral commission on top.

The people inside it were shopkeepers, teachers, retired people, housewives, farmers and plenty of others. Some of them had been getting their monthly return for a long time without a miss. So what exactly is wrong with it?

I'm not going to name the product, the company or anyone involved. That's on purpose. In schemes like this, the product is almost never the point. Sometimes it's fake. Sometimes, like the one we were pitched, it's a real thing you could buy somewhere else on your own. Either way it's a cover. The scam is what gets built around it. And the name matters even less. The one I looked at has changed its name more than once, and copies of the same plan are running with completely different products. Names change. The model doesn't.

So this post is about the model. I'm writing it down so that the next time it shows up with a different name, a different product, or pitched by a different person, I (and maybe you) can recognise it in the first ten minutes.

MLM, pyramid, Ponzi: not the same thing#

Before going further, one thing needs to be clear, because people mix these up all the time.

MLM (multi-level marketing) is a real, legal business model. There's a real product, and real customers who buy it because they actually want it. You earn from what you sell, and a commission on what the people you brought in sell. Recruiting is part of it, but the money at the bottom of it all comes from customers paying for a product. In India, direct selling like this is allowed and has its own rules.

A pyramid scheme looks like an MLM from outside. It has a product, a team, ranks and commissions. But the product is only a cover, and in most cases it's fake. The money comes from people joining and putting money in, and you earn mainly by bringing in more people. When joining slows down, the money stops.

A Ponzi scheme promises a fixed return, and pays it with other people's money. The early investors get their "returns" out of the locked money put in by newer investors. Nothing is really being earned. It works only as long as more money keeps coming in than going out.

This is also why the person pitching to you often really is doing well. They'll point to the early members, or to themselves, with a new car, a new house, a lot of wealth, and say it all came from the product and from "the business". The wealth is real. Where it came from is the part they leave out. The early members joined when there were only a few people above them and a lot of new people still to come. Their returns and their commissions have been paid out of the money of everyone who joined after them. Their success isn't proof that the plan works. It's proof of who is paying for it.

What I'm writing about is a pyramid scheme in how it grows, and a Ponzi scheme in how it pays. The same rules that allow direct selling in India, the Consumer Protection (Direct Selling) Rules, 2021, specifically ban pyramid schemes and money circulation schemes, for exactly this reason.

There's a simple test to tell a real MLM apart. If nobody new joined from tomorrow, would the business still make money from people buying the product? In a real MLM, yes. In this one, no.

How it reaches you#

It never comes as an advertisement. You will not see it on TV, on a banner at the bus stand, or as a YouTube ad. It comes through someone close to you: a relative, a friend, a colleague, the neighbour upstairs.

That person usually isn't trying to cheat you. Most of them genuinely believe it. But they also have a reason to bring you in, which is the referral commission. Keep that in mind, because the whole thing runs on it.

The first step is almost always "just come to one meeting". And the meetings are never in a public place. It's a small hotel hall, a lodge, a warehouse, someone's house, or a Zoom call. There's a lot of energy, people in coats, big words, titles, a lot of clapping.

Then comes the proof, and the proof is always about people, never about the business:

• The textile shop owner in our town has put money in.
• One of the leaders just bought a ₹50 lakh car.
• Someone put in ₹3 lakh a few years ago and has already taken out more than ₹6 lakh.

What the pitch says#

Across the pitches and plan documents I went through, the offer looks roughly like this:

• A fixed return. Something like 5% a month, which they sell as 60% a year, or "three to five times your money" over a few years. Some plans also show a big "bonus" credited the day you join, so your balance on the screen is already more than double what you put in.
• A long lock. Your money is locked for years. The longer you lock it, the bigger the promised return. You can't take the principal out before that.
• A small entry. You can start with a few thousand rupees. "You don't need a lot."
• A big story. The product is new technology, or the future of something, or "the next big thing, get in early". "We are a global community." There's usually an office address in some other country, and later the company is registered in yet another one.

On its own, each line sounds like something you'd hear about any investment. It's when you check the numbers that it falls apart.

The math doesn't work#

Let's put the 60% a year next to what money normally earns.

There's one more row worth adding, and you have to find it yourself: what does the product behind the plan actually earn when it's used honestly? In the one I looked at, you could work that out from public information, and even in the best case it came to about a third of what the plan promised. And that best case wasn't guaranteed either.

So even if the company really did put every rupee into the product, the real work would pay about 20. They are promising 60.

The other 40 has to come from somewhere. There is only one somewhere: the next person who joins. That's the textbook definition of a Ponzi scheme.

The early investors are being paid with the newer investors' money.

Also, the richest people and the biggest companies in the world fight to get 10 to 20% a year. Some years they lose money. If there was a safe way to get 60% without doing anything, they would have taken it long before your neighbour heard about it.

Where the money actually goes#

This part will take the longest to understand, so I'll go step by step.

When you refer someone, your commission is usually not paid in rupees. It's paid in points, credits, scores or units inside the company's app. And here's the catch: you can't just walk out and turn those into cash at the value your dashboard shows. Although in a successful ongoing scam you can be allowed to withdraw just to gain your trust, but at the verge of scam it's not possible. There's nobody outside waiting to buy them at that price.

So how do you turn that commission into money? You find a new person who wants to join. They give you rupees. You transfer your commission units to them inside the app. They lock those units in the plan. Your commission just became cash, and their money just became a number on a screen.

I have seen the inside of one of these member portals. A "withdrawal" lands in an internal wallet, and a few minutes later the same amount goes out as a transfer to another member's ID. Somewhere, that other member hands over rupees. Your exit is not a bank. It's a person further up the tree.

Once you see this loop, a few things make sense:

• Why they say you can start small. The people above you are sitting on piles of commission units they can't sell anywhere. A small entry is enough for them to unload some.
• Why everyone is so eager to bring people in. It's the only exit door.
• Why some people register fake members. Put your own money in under your wife's or brother's name, collect the commission on it, move it on again. It's all real rupees going in and screen numbers coming out.
• Why "my monthly return has never missed" is true, and also not the point. It hasn't missed because new money keeps coming in. The question was never whether you get paid. It's who is paying you.

And the long lock does a very specific job. It means nobody asks for their principal back for years. That's years of new money with almost nothing going out except the monthly cut.

That locked money is the real source for the people at the top. It pays for the older members' monthly returns, the leaders' commissions and rank bonuses, the cars, the trips, the events. Your principal isn't sitting somewhere earning. You're basically paying for the people above you.

A scheme that has to pay people back quickly collapses in months, because the money has to come back fast. A lock that runs for years can keep going for as long as new people keep joining. The collapse doesn't come on a date. It comes when new money slows down. And new money slows down only when people start seeing through it and stop bringing others in.

The pyramid#

On top of the monthly return there's the team structure. This is the part that makes it look like an MLM. But in a real MLM, your team's commission comes from what they sell to customers. Here, it comes from the money your team puts in. That's the pyramid. And the product, again, is either a cover or a fake.

Everyone has a left side and a right side. The new money that comes in on both sides of your tree is added up, and you are paid a percentage of the smaller side (in points or credits, not real money). So you don't just need recruits. You need recruits on both legs, balanced.

Then there are ranks, ten or more of them, with grand names borrowed from cars, space, universities and boardrooms. Each rank needs a certain number of people under you, split across your two sides, each with a minimum amount locked in. Each rank comes with a one-time bonus.

Below is what the simplest version of that looks like, where everyone brings in just two people, one on each side.

Ten levels down, one person already has more than two thousand people under them. And look at the last row. In a tree like this, half of everyone is at the bottom, with nobody under them yet. In some other schemes, the lower levels need four people each, not two, and it gets worse: three out of every four people end up in the bottom row. That's where almost everyone who joins will be. Not because they are lazy, but because the arithmetic has no room for anything else.

Keep doubling and it runs out of people fast. Thirty-one levels deep, even the simple version needs more people than there are in India.

A few more rules I found in the plans, each of which quietly keeps money inside:

• Commissions are capped at the amount you invested. To keep earning, you have to put in more.
• Half of your team commission goes straight back into the plan. Only the other half can be withdrawn.
• In some plans, half your monthly return is paid out and half stays locked till maturity. You enjoy the half you see and forget about the half you don't.
• Rules change without a vote. The referral commission in one of them was quietly cut in half.
• In one copy, to reach the next rank you also have to buy an add-on, a thing nobody can properly show you, just to be "eligible".

How they keep you in#

The money explains why people join. It doesn't explain why they stay, defend it and fight anyone who questions it. That part comes from how the community is built.

It's also one more reason I'm not naming anything here. Name one of these schemes in public and its members will turn up in your comments, report your posts, and sometimes threaten you. The company behind it almost never will. Sending a legal notice or going to court would mean showing who they are, where they're registered and where the money went. For an outfit with no registration or tax records in India, that's the last thing it wants. The threats come from the people inside, protecting their own money.

You become a leader on day one. Put in even a few thousand and people start calling you "Leader" or "Champion". "Leader, did you eat?" "Leader, there's a meeting today." For someone in a village who is rarely even called "sir", that feels like something.

You are always in a meeting. WhatsApp groups, Signal groups, and Zoom calls three or four times a week. The content is big-picture news about the industry, videos of technology made by other companies, and mostly, how to explain the plan to others and how to handle their doubts. Some groups run training batches for the people who will run the next meetings. The meetings train the next set of recruiters.

There's a stage. Events in nice hotels with nice food. Your new title announced from the stage, a trophy or a medal worth a hundred rupees, applause. Then trips to a hill station, or abroad. "Put in just a little and you might go on the next trip." Nobody asks whose money pays for a hundred people's trip. It's yours.

It becomes who you are. After a while it stops being an investment and becomes an identity. People inside it call themselves by the community's name. Anyone who asks questions gets called jealous, negative, paid by someone, or someone who "doesn't understand the business".

They choose who to pitch. In the meetings I watched, most people were 45 and above: pensioners, housewives with gold, farmers with some savings, small business owners. People with ₹10 to 20 lakh put away and no reason to know how the product actually works. Recruiters are told to avoid young people who ask too many questions. But young people are also into these kinds of things.

Nothing is ever explained in plain words. In one copy of this scheme, the pitch had moved on to buzzwords stacked on buzzwords: virtual land, digital assets, members voting for "ministers" inside the app. Nobody understood it. That was the point. When someone speaks in words you don't understand, you assume they know more than you.

Questions go nowhere. In the Zoom meetings, only the host can unmute you. The "feedback" slot is for praise: "excellent session sir, very informative". Sometimes a senior leader asks the common man's question on purpose, gets a long answer full of jargon and is told "we'll cover it in the next session", and the audience feels their doubt was handled.

What was visible early#

Here's the part I actually wanted to write down. None of what follows needs inside information. All of it was visible before a single rupee went in.

About the return#

• It's fixed. Real investments go up and down. Anything that promises the same percentage every month is paying you from somewhere other than the business.
• It's several times what anything else earns. 60% a year, 20 times your money, 30% a month with "the power of compounding". The number keeps getting bigger in each new version.
• It comes with a long lock on your principal, but a monthly payout on the interest. You get paid enough to stay happy, never enough to leave.

About how it reaches you#

• Only through people you know. No ads, no banner, no public office you can walk into.
• Meetings are private: a lodge, a hall, a house, a Zoom or Google Meet call.
• The proof is always a person (a car, a trip, someone's withdrawal), never the business.
• You're told to borrow to invest.

About the paperwork#

• The website has no sign-up button, only a login. You can't join without a referrer, and often your leader creates the ID and password for you.
• The homepage talks about something grand and general. The actual product you're putting money into is barely mentioned on the public site, if at all.
• The terms and conditions, written in English legalese most members can't read, say things like: returns are not guaranteed, you take full responsibility, the company is not responsible for what other members told you, you are not entitled to a refund at any time for any reason, and the company can block your login, transfers, withdrawals and bonuses, partly or fully, temporarily or permanently. The leader says "guaranteed". The paper says the opposite.
• The company is registered in another country and has no GST registration in India. The office addresses turn out to be random buildings. The website's visitors are almost entirely from one region. The domain was bought recently.
• Your Aadhaar, photos and sometimes OTPs are collected by your leader.
• When you put money in, you don't get a GST invoice or any proper receipt. You get a message from the person who referred you, or a number in their app.

About the product#

• If the product is real, you don't need these scheme's plan to get it. You can usually buy it straight from a shop, the maker or a regular marketplace, at a normal price, with no lock, no leader and no referral tree. If the only way to "get" it is by joining the plan, then the plan is what's being sold, not the product.
• "It will be worth ten times this soon" is the pitch. Check how long it has been saying that. In the one I looked at, the value had stayed in the same narrow range for years, while members were told it would multiply "soon". Ask today and it's still "soon".
• Its value doesn't move with anything else in the real world. When everything similar goes up, it can go down, and the other way round. It moves with the scheme.

About the exit#

• Ask what happens when a lot of people want out at the same time. In the one I looked at, a single large sale once cut the value in half within a few hours, before it was nudged back up on very little activity. Leaders talk about holding crores worth on paper. The market couldn't take a small fraction of that. When the big holders try to cash out at maturity, there's nobody on the other side.
• In one copy, the product could only be bought and sold inside the company's own app. The value chart was a flat line for days that jumped overnight. The app showed crores in daily "volume" while nothing seemed to change hands. The app blocked screenshots and screen recording.
• Do the size test. Take the value they claim and multiply it by how much of the thing they say exists. In that copy, the answer would have made it one of the biggest names in its entire industry, worldwide. A world leader that nobody outside your district has heard of doesn't exist.

How it feels before it fails#

Yeah, the title of this post comes from here. From the inside, a scheme like this doesn't feel like it's failing. It feels great, right until it doesn't.

The one I looked at has already been through most of these stages. An earlier version of it was booked by the police and called a Ponzi scheme. Complaints about it later reached the regulators. Each time things got hot, it came back with a new name and a new logo. Inside, it was explained as "rebranding for growth".

The squeeze has started too. I saw one member's dashboard. His withdrawals had come twice a month like clockwork for a long time. Then one came through smaller than usual. The next two were marked "deleted". Not rejected, not under review. Deleted. Support told him to reset his password. Another member, who had been in long enough for his plan to mature, posted in the official community group that he hadn't been able to cash out his matured amount for over a month. The message was deleted within minutes. In that group, any message with the word "scam", "fake" or the company's name disappears in seconds.

The most common defence I heard was "show me one person who has lost money". In this model, people don't lose money one at a time. Everyone gets paid, until one day nobody does, and then everyone loses together.

A scam pays while it's running. It just doesn't pay at the end.

There's one more thing I noticed, and it's the saddest part. Once your money is inside, you become the scheme's defender. The man with the deleted withdrawals first asked an outsider for help. A week later he turned against that same person, publicly, and said his problem was solved after talking to his leader. His money was still inside. That's how it works: your own principal is the hostage. You'll go to any length to defend that money, even if it's a scam.

The same model, in different clothes#

While looking into this, I kept running into the same scheme wearing different clothes.

• A brand-new product launched by a local company, which can only be traded inside its own app, paying 5% a month with the money locked for years. The poster says "100% secure, capital returned" and an "expected future value" four times today's, so a lakh becomes twenty. A small line at the bottom says "not financial advice, do your own research".
• A website where you deposit money and get a small percentage every single day until it doubles. Referral bonus on top. The site has since shut down.
• A product whose value has already fallen to a tiny fraction of its peak, still being pushed on YouTube with a "compounding plan" of 18% a month, and a 30% a month version.

The product changes. The city changes. The percentage goes up. And quite often, the leaders are the same people, moving from one scheme to the next with their team.

The product can be anything: a gadget, a health drink, a plot of land, an online course, an app. What stays the same is the list above, and none of it is about selling a product to a customer, which is what separates it from a real MLM. A fixed high return. A long lock. Payment in something you can't easily sell. A referral commission that only turns into cash when you recruit. Private meetings, titles, trips. Paperwork that promises nothing. And a new name, new logo, new domain whenever things get hot.

Questions to ask the person pitching you#

If someone brings you a plan like this, you don't need to argue about the product. Ask these instead, and watch what happens.

1. "You're telling me to take a loan. Will you sign as the guarantor on it?"
2. "I'll give you the money as a loan and you invest it in your name. Will you sign a promissory note that you'll return it if the plan fails?"
3. "Can I join on the website myself, without you?"
4. "Can I take my principal back next month if I change my mind?"
5. "Where exactly is my money kept? Show me something that isn't the company's own app."
6. "Let's call 1930, the cybercrime helpline, together and tell them we're offering a fixed 5% a month. If they say it's fine, I'm in."
7. "Let's put up a big banner with your photo and the monthly return near the police station and the bus stand. I'll pay for the banner."
8. "What do you get if I join?"

Their guarantee is only ever spoken. Ask for it in writing and see how quickly the conversation changes.

And one more, for yourself. If your relative or neighbour had really found a business that pays 5% a month, guaranteed, would they be at your door telling you about it? Or would they be quietly putting in everything they had? A good business idea doesn't come looking for you. A commission does.

If you're already in#

I'm not an advisor, and I can't get anyone's money back. But from everything I read and watched, a few things are clear.

• Take control of your login. Change the password yourself and don't share it with anyone, including your leader. A lot of members' accounts are operated by the person who enrolled them.
• Take screenshots now, while the site works. Your total investment, locked amount, returns received, start dates, maturity dates, transaction history, referral tree, and the terms and conditions. Save them somewhere other than your phone's chat apps. If the site stops opening, a username and password prove nothing.
• Write down the money trail. Who enrolled you, who you paid, how much, in what way (cash, UPI, bank transfer), and who transferred units to you inside the app.
• Don't recruit to get your own money out. That's exactly how the loss moves to the next family.
• Don't put more in to "recover". The cap-and-reinvest rules are designed to make you do that.
• Report it. Call 1930 or file at cybercrime.gov.in, go to your local cyber crime cell, or approach the state Economic Offences Wing. Schemes that take deposits with promised returns without being registered are banned under the Banning of Unregulated Deposit Schemes Act, 2019.
• Watch out for the second scam. People who lose money in one of these become targets for another. "Recovery agents" who want a fee to get your money back. "Admins" in community groups who DM you a link and ask for your OTP, your password, or to install an app. Never hand those over to anyone.

The one thing I'd keep#

What's wrong is where the payment comes from. Every rupee of that monthly return was put in by someone who joined after you. Most likely someone you know, brought in by you or by someone like you. The monthly credit feels like income. It's really a transfer from the newest family in the tree to an older one, with the people at the top keeping a cut at every step.

A pyramid to bring the money in, a Ponzi to pay it out.

So the next time something like this comes with a new name, I'm not going to start with the product. I'm going to ask one question.

Where is the money coming from?

If the honest answer is "the next person", or "just trust the product", I already know how it ends.