State and federal regulators continue to warn investors about new investment scams, especially during a time like this when people are desperately looking for better returns in a declining market.

But two tried and true scams — pyramid and multilevel marketing schemes — keep trapping investors.

Almost all pyramid promotions are illegal because members earn money primarily from getting people to pay to participate in the operation. The pyramid eventually collapses when new members can't be recruited.

The Federal Trade Commission, the Securities and Exchange Commission and the Better Business Bureau have all issued warnings about multilevel marketing plans. With a legitimate multilevel marketer, participants make money selling products or services and by getting commissions on sales made by their own recruits, not just by paying a fee and getting others to pay a fee to join the organization. It is difficult to distinguish legitimate multilevel marking schemes from pyramid schemes, so you need to be very cautious before joining, according to the FTC.

Authorities are also concerned that both types of schemes frequently prey on the trust and friendship that exist in groups of people who have something in common. This type of "affinity fraud" is listed by the North American Securities Administrators Association (NASAA) as among the top 10 investment traps.

If you are presented with a money-making proposition promising easy earnings or extraordinary investment returns, you need to be skeptical.

A friend of mine recently allowed Georgia-based Financial Independence Group LLC to give a presentation to a small group at her home. She was so skeptical that she asked me to sit in.

What I heard at that meeting raised a dozen or more red flags for me and for law enforcement officials I contacted afterward.

Frederick C. Lee Jr., the founder of Financial Independence, said in a telephone conversation that his company "teaches money movement strategies." For details about his company, Lee said to contact his attorney.

The attorney, Brian M. Douglas of Atlanta, did not answer e-mailed questions and did not return phone calls.

Angela Garnett, a regional manager for Financial Independence, made the presentation at my friend's house. She was pleasant and animated, ending a lot of her sentences with an exaggerated "riiiight."

"If I can show you how to make a 400 percent return on your money in seven days, would you be interested?" Garnett asked the group.

Here is how I could get that fantastic return: I had to pay a $100 membership fee. If in seven days I recruited five people and two of them decided to refinance their mortgages through the company, I could earn a $500 bonus. Thus the 400 percent return.

Garnett said the company uses an outside lender's wholesale loan department to assist homeowners in refinancing their mortgages. She showed illustrations of how homeowners could earn hundreds of thousands of dollars by investing the equity from their home.

"All they have to do is use their house, riiiight," she said.

However, using equity to invest is highly risky, said Joseph P. Borg, president of NASAA and director of the Alabama Securities Commission.

"In my opinion this is dangerous unless a lot more information was given and a proven record was shown," Borg said.

Garnett would not provide me with any written materials. She said the company had people who could show homeowners what they should invest in.

"Oh, so you have financial advisers?" I asked. "Can I have a list of who they are so I can check them out?"

"You don't have to use our people," she responded.

The more questions I asked, the more defensive Garnett became. To get more details I had to pay the $100 membership fee, she said.

"Why do I have to become a member before learning more about the company?" I asked.

"Membership has its privileges," she quipped.

Finally Garnett asked, "Who invited you here?"

"My friend," I said.

"Would your friend introduce you to anything that is crazy?" she asked.

That was a huge red flag for me and should be for you if you should hear similar words at a business or investment promotion. Friends can unknowingly pull you into a scam or risky venture.

"I can't say if this company is illegal but based on what you've told me, I would stay away from it in a hurry," said Borg. "I would be very concerned."