Watchdog's warning over pyramid selling

Pyramid selling operations appear attractive and offer thousands of pounds to people who pump money into them.

But many are doomed to fail and people who are drawn in often lose money.

The BBC1 Watchdog programme featured a money-making operation on the Isle of Wight where people invested £3,000. They warned a similar scheme has been reported in Brighton.

Banks on the island had to deal with so many withdrawals of £3,000 that there were concerns they could run out of money.

Each person had to find eight other people to invest in the Women Empowering Women scheme.

They in turn then need to attract another eight people for the pyramid to grow but many people have said they have lost their investment.

It is not known what form they take but they are thought tobe based on pyramid selling.

John Peerless, of Brighton and Hove City Council's trading standards department, said: "These schemes happen when one person starts it and then it feeds off other people.

"If someone starts a product line they get someone else to sell it on their behalf. They then take a percentage that the person makes. It is called multi-level marketing but it is not illegal as long as regulations are complied with under the Fair Trading Act.

"We would warn people not to get involved with them. People must go into these things with their eyes open and know what they can expect from them.

"£3,000 seems a lot of money to invest in a one-off like this. If you put a fiver in, most people would not baulk at that but I reckon someone putting in a few thousand would be up in arms."

Bill Cleghorn, of accountancy firm Price Waterhouse Cooper, which was contacted by Watchdog, said: "Although some people at the top of the pyramid make money, many people on the Isle of Wight lost their investment.

"These schemes drew in so many people in one week that NatWest had so many withdrawals it was concerned it would run out of money."