What is a Pyramid Scheme?
Pyramid schemes, also referred to as “chain referral”, “binary compensation” or “matrix marketing” schemes, are marketing and investment frauds which reward participants for inducing other people to join the program. Ponzi schemes, by contrast, operate strictly by paying earlier investors with money deposited by later investors without the emphasis on recruitment or awareness of participation structure. Pyramid schemes focus on the exchange of money and recruitment. At the heart of each pyramid scheme there is typically a representation that new participants can recoup their original investments by inducing two or more prospects to make the same investment. For each person you bring in you are promised future monetary rewards or bonuses based on your advancement up the structure. Over time, the hierarchy of participants resembles a pyramid as newer, larger layers of participants join the established structure at the bottom. They say you will have to do “little or no work because the pe
A pyramid scheme is a fraudulent investing plan that has unfortunately cost many people worldwide their hard-earned savings. The concept behind the pyramid scheme is simple and should be easy to identify; however, it is often presented to potential investors in a disguised or slightly altered form. For this reason, it is important to not only understand how pyramid schemes work, but also to be familiar with the many different shapes and sizes they can take. The Scheme As its name indicates, the pyramid scheme is structured like a pyramid. It starts with one person – the initial recruiter – who is on top, at the apex of the pyramid. This person recruits a second person, who is required to “invest” $100 which is paid to the initial recruiter. In order to make his or her money back, the new recruit must recruit more people under him or her, each of whom will also have to invest $100. If the recruit gets 10 more people to invest, this person will make $900 with just a $100 investment. The
A pyramid scheme is a type of scam which promises the investor that their initial investment will make them extraordinarily rich. In reality, the pyramid scheme does not deliver on promised profits. In most cases, only the people who originate the pyramid scheme, and a few of the initial salespeople or people who get in at the top of the pyramid will make any money. Most people merely lose money because their money only benefits those already involved in the scam. The pyramid scheme tends manifest itself in products with exciting labels like “get rich quick,” or “make millions without working.” The hallmark of the pyramid scheme is that no actual product is offered. Instead, people pay a one-time fee to sign up to be part of the scheme, or may purchase materials instructing one how to sign up others. To make any money, the person must then sign up other people. Part of the revenue from new recruits must be given to those who signed one up for the program. These people in turn give part
A pyramid scheme is a fraudulent system of making money based on recruiting an ever-increasing number of “investors.” The initial promoters recruit investors, who in turn recruit more investors, and so on. The scheme is called a “pyramid” because at each level, the number of investors increases. The small group of initial promotors at the top require a large base of later investors to support the scheme by providing profits to the earlier investors. Pyramid schemes are illegal in New York State, as well as in many other states. Article 23A of the General Business Law of the State of New York ยง359-fff sets forth the criminality of initiating and participating in pyramid schemes (also known as chain distributor schemes). Pyramid schemes may or may not involve the sale of products or distributorships. The trend is to involve sales of products or distributorships in an attempt to show legitimacy. This is done solely to sidestep the regulatory agencies, as most state laws prohibit marketing
Pyramid schemes are illegal scams in which large numbers of people at the bottom of the pyramid pay money to a few people at the top. Each new participant pays for the chance to advance to the top and profit from payments of others who might join later. For example, to join, you might have to pay anywhere from a small investment to thousands of dollars. In this example, $1,000 buys a position in one of the boxes on the bottom level. $500 of your money goes to the person in the box directly above you, and the other $500 goes to the person at the top of the pyramid, the promoter. If all the boxes on the chart fill up with participants, the promoter will collect $16,000, and you and the others on the bottom level will each be $1,000 poorer. When the promoter has been paid off, his box is removed and the second level becomes the top or payoff level. Only then do the two people on the second level begin to profit. To pay off these two, 32 empty boxes are added at the bottom, and the search
