A pyramid scheme is a fraudulent business model in which participants make money mainly by recruiting new members and taking a share of their entry payments, rather than by selling a genuine product or service to outside customers. The structure depends on an ever-growing chain of new recruits to keep paying earlier members, which makes it mathematically unsustainable: as recruitment inevitably slows, the large majority of participants, especially those who join later, lose the money they put in while only those nearest the top profit. Pyramid schemes are illegal in the United States, Canada, the United Kingdom, Australia and most other developed countries, and are often disguised as multi-level marketing companies in an attempt to evade that prohibition.
Facts
Partially Attested
Origin YearSources describe pyramid schemes as existing in various forms since at least the mid-to-late 19th century, with no single founding year given; 1880 is used here as an approximate midpoint of that documented range, the same imprecise-but-citable-year convention already used on this atlas' Multi-Level Marketing (1930), Vertical Integration (1920) and Razor-and-Blades Model (1920) entities. Core MechanismA pyramid scheme recruits members who pay to join and are promised a share of the money collected from every additional member they in turn recruit, so returns depend on continually expanding recruitment rather than the sale of a real product or service. 1 Connections
Associated With
Pyramid schemes, promising returns funded chiefly by new recruits' payments rather than legitimate revenue, are a fraud pattern regulators track within financial services.
Consumer protection literature describes the matrix scheme as a structural variant of the pyramid scheme, recruiting participants into a fixed size chain rather than an open ended one.
Pyramid schemes are frequently disguised as multi-level marketing companies in an attempt to evade the laws against them; genuine multi-level marketing is a legal direct-selling structure distinct from the illegal recruitment-only pyramid pattern.
Sources
1. Wikipedia, Pyramid Scheme
WikipediaLead section
In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit.
Lead section, history
Pyramid schemes have existed in various forms since at least the mid-to-late 19th century.
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