Pyramid scheme: Difference between revisions
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{{Short description|Type of unsustainable business model}} |
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[[Image:Pyramid scheme.svg|thumb|right|350px|The unsustainable geometric progression of a classic pyramid scheme]] |
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[[File:Pyramid scheme diagram.svg|thumb|upright=1.3|The unsustainable exponential progression of a classic pyramid scheme in which every member is required to recruit six new people. To sustain the scheme, the 2.2 billion people in the 12th layer would be required to recruit 13.1 billion more people for the 13th layer, even though there are not nearly enough [[World population|people in the world]] to achieve that.]] |
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A '''pyramid scheme''' is a [[business model]] which, rather than earning money (or providing [[Return on investment|returns on investments]]) by sale of legitimate [[product (business)|products]] to an end consumer, mainly earns money by recruiting new members with the promise of payments (or services).<ref>{{Britannica URL|topic/pyramid-scheme|pyramid scheme}}</ref><ref>{{cite web |url=https://consumer.sd.gov/fastfacts/marketing.aspx |url-access= |title=Multi-Level Marketing vs Pyramid Schemes |author=Website admin. |year=2024 |department=Consumer Protection |website=consumer.sd.gov |publisher=Office of the Attorney General of South Dakota |location=|type= |access-date=February 18, 2024 |quote=The difference between a pyramid scheme and a lawful MLM program is that there is no real product that is sold in a pyramid scheme. Participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same. }}</ref> As the number of members multiplies, recruiting quickly becomes increasingly difficult until it is impossible, and therefore most of the newer recruits do not make a profit. As such, pyramid schemes are unsustainable. The unsustainable nature of pyramid schemes has led to most countries outlawing them as a form of [[fraud]]. |
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Pyramid schemes have existed since at least the mid-to-late 19th century in different guises. Some [[multi-level marketing]] plans have been classified as pyramid schemes.<ref name="Smith1984" /> |
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A '''pyramid scheme''' is a [[non-sustainable]] [[business model]] that involves the exchange of [[money]] primarily for enrolling other people into the scheme, often without any [[product (business)|product]] or [[Service (economics)|service]] being delivered. |
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== Concept and basic models == |
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[[Pyramid]] schemes are illegal in many countries, including the [[United States]]<ref>[http://www.ftc.gov/speeches/other/dvimf16.shtm Pyramid Schemes] ''Debra A. Valentine, General Counsel, Federal Trade Commission''</ref>, the [[United Kingdom]], [[France]], [[Germany]], [[Canada]], [[Romania]]<ref>[http://www.ziua.ro/display.php?data=2006-07-12&id=203369 Explozia piramidelor] ''Ziarul Ziua, 12.07.2006''</ref>, [[Colombia]]<ref>http://news.bbc.co.uk/1/hi/world/americas/7736124.stm</ref>, [[Malaysia]], [[Norway]], [[Bulgaria]], [[Australia]]<ref>[http://www.comlaw.gov.au/comlaw/Legislation/Act1.nsf/0/5A0DC6C047FFEA5ACA256F72000F75F1/$file/1282002.pdf Trade Practices Amandment Act (No. 1) 2002] ''Trade Practices Act 1974 (Cth) ss 65AAA - 65AAE, 75AZO</ref>, [[New Zealand]]<ref>[http://www.consumerfraudreporting.org/pyramidschemes_laws.htm Laws and Regulations Covering Multi-Level Marketing Programs and Pyramid Schemes] ''Consumer Fraud Reporting.com''</ref>, [[Japan]]<ref>[http://law.e-gov.go.jp/htmldata/S53/S53HO101.html 無限連鎖講の防止に関する法律] (in Japanese)</ref>, |
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In a pyramid scheme, an organization compels individuals who wish to join to make a payment. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit. The directors of the organization (those at the top of the pyramid) also receive a share of these payments. For the directors, the scheme is potentially lucrative—whether or not they do any work, the organization's membership has a strong incentive to continue recruiting and funneling money to the top of the pyramid. |
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[[Nepal]]{{Fact|date=March 2008}}, [[Philippines]]<ref>[http://query.nytimes.com/gst/fullpage.html?res=9C05E4DA1539F933A05750C0A9659C8B63] Investors in Philippine Pyramid Scheme Lose over $2 Billion</ref>, [[South Africa]]<ref>[http://www.whitecollarcrime.co.za/news.php?item.95] Pyramid Schemes</ref>, [[Sri Lanka]]<ref>[http://www.documents.gov.lk/Acts/2006/Banking%20(Amendment)%20Act%20No.%2015%20of%202006/Banking%20(Amendment)%20Act%20(E).pdf Pyramid Schemes Illegal Under Section 83c of the Banking Act of Sri Lanka]Department of Government Printing, Sri Lanka</ref>, [[Thailand]]<ref name="สมาคมการขายตรงไทย">[http://www.tdsa.org/download/piramid.pdf ข้อมูลเพิ่มเติมในระบบธุรกิจขายตรงและธุรกิจพีระมิด] by Thai Direct Selling Association (in Thai)</ref>, [[Iran]]{{Fact|date=March 2008}}, and the [[People's Republic of China]]<ref name="Regulations for the Prohibition of Pyramid Sales">[http://tradeinservices.mofcom.gov.cn/en/b/2005-08-23/24294.shtml Regulations for the Prohibition of Pyramid Sales]</ref>. These types of schemes have existed for at least a century. |
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Such organizations seldom involve sales of products or services with value. Without creating any goods or services, the only revenue streams for the scheme are recruiting more members or soliciting more money from current members. The behavior of pyramid schemes follows the mathematics concerning [[exponential growth]] quite closely. Each level of the pyramid is much larger than the one before it. For a pyramid scheme to make money for everyone who enrolls in it, it would have to expand indefinitely. When the scheme inevitably runs out of new recruits, lacking other sources of revenue, it collapses. Since the biggest terms in this geometric sequence are at the end, most people will be in the lower levels of the pyramid; accordingly, the bottom layer of the pyramid contains the most people. The people working for pyramid schemes try to promote the actual company instead of the product they are selling. Eventually, all of the people at the lower levels of the pyramid do not make any money; only the people at the top turn a profit.<ref>{{Cite web|url=https://www.fbi.gov/scams-and-safety/common-fraud-schemes/pyramid-schemes|title=Pyramid Schemes|website=Federal Bureau of Investigation|language=en-us|access-date=2019-04-18}}</ref> |
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==Concept and basic models== |
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Pyramid schemes exploit greed and gullibility. A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula. The essential idea is that the mark, Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the<nowiki> ''business''</nowiki> expands. |
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People in the upper layers of the pyramid typically profit, while those in the lower layers typically lose money. Since most of the members in the scheme are at the bottom, most participants will not make any money. In particular, when the scheme collapses, most members will be in the bottom layers and thus will not have any opportunity to profit from the scheme; still, they will have already paid to join. Therefore, a pyramid scheme is characterized by a few people (including the creators of the scheme) making large amounts of money, while subsequent members lose money. For this reason, they are considered [[scams]].<ref>{{Cite web|url=https://www.scamwatch.gov.au/types-of-scams/jobs-employment/pyramid-schemes|title=Pyramid schemes|first=Australian Competition and Consumer|last=Commission|date=May 14, 2015|website=Australian Competition and Consumer Commission}}</ref> |
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Such <nowiki>''businesses''</nowiki> seldom involve sales of real products or services to which a money value might be easily attached. However, sometimes the <nowiki>''payment''</nowiki> itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. |
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Clearly, the flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the "pharaoh") and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Of course, the worst off are at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves. |
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=== The "eight ball" model === |
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Some network or [[multi-level marketing]] businesses, which sell real products and rely on the price differentials between the manufacturer's dispatch ramp and the retail counter, may verge on the borderline between <nowiki>''smart'' and ''scam''.</nowiki> When a pyramid does involve a real product, such as [[Holiday Magic]] cosmetics in the United States in the 1970s, new <nowiki>"dealers"</nowiki> who've paid enrolling fees are encouraged, in addition to selling their products, to become <nowiki>"managers"</nowiki> and recruit more new <nowiki>"dealers"</nowiki> who will also pay enrolling fees. As the number of layers of the pyramid increases, new recruits find it harder and harder to sell the product because there are so many competing salesmen. Those near or at the top of the pyramid make a lot of money on their percentage of the enrolling fees and on commissions for the supplied products, but those at the bottom are left with inventories of products they can't sell. However, most [[multi-level marketing]] businesses are not pyramid schemes. |
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[[File:Airplane game.svg|thumb|The "eight-ball" model contains a total of fifteen members. Note that in an [[arithmetic progression]] 1 + 2 + 3 + 4 + 5 = 15. The pyramid scheme in the picture in contrast is a [[geometric progression]] 1 + 2 + 4 + 8 = 15.]] |
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Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult, so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases. The scheme requires a person to recruit two others, who must each recruit two others, and so on. |
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Pyramid schemes are not to be confused with [[Ponzi schemes]], named after [[Charles Ponzi]], which also rely on greed and gullibility but are quite different. In a Ponzi scheme, all new money is paid to "Mr. Ponzi" for investment in his incredibly profitable business and he distributes a portion of it to other members as "interest" or "investment income" whereas in a pyramid, money is paid to the next level upward in the pyramid. |
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Prior instances of this scheme have been called the "[[Airplane game|Airplane Game]]" and the four tiers labelled as "captain", "co-pilot", "crew", and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labeled the tiers as "dessert", "main course", "side salad", and "appetizer". A person on the "dessert" course is the one at the top of the tree. Another variant, "Treasure Traders", variously used [[gemology]] terms such as "polishers", "stone cutters", etc. One version called the Abundance Fractal uses the four elements as the names of tiers: "Fire", "Air", "Earth", and "Water". A more recent variation known as the Living Workshop takes the names of plants, calling the tiers "seed", "sapling", "blossom", and "lotus". |
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== "8-ball" model == |
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Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases. The scheme requires a person to recruit two others, who must each recruit two others, who must each recruit two others. |
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Such schemes may try to downplay their pyramid nature by referring to themselves as "gifting circles" with money being "gifted". Others focus on sharing circles or educational themes around "abundance" to divert attention away from the unsustainable structure. Popular schemes such as "Women Empowering Women"<ref>{{cite web|author=Tracy McVeigh |url=https://www.theguardian.com/uk/2001/aug/05/tracymcveigh.theobserver |title=Pyramid selling scam that preys on women to be banned |work=Guardian |date=2001-08-05 |access-date=2013-04-02}}</ref> do exactly this. |
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[[Image:Pyramid8Ball.svg|frame|right|100px|The "8-ball" model contains a total of 15 members. Note that unlike in the picture, the triangular setup in the cue game of ''[[eight-ball]]'' corresponds to an [[arithmetic progression]] 1 + 2 + 3 + 4 + 5 = 15. The pyramid scheme in the picture in contrast is a [[geometric progression]] 1 + 2 + 4 + 8 = 15.]] |
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Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme—with the Airplane Game as the example, the person at the top of this tree is the "captain", the two below are "co-pilots", the four below are "crew", and the bottom eight joiners are the "passengers". |
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Prior instances of this scam have been called the "[[Airplane game|Airplane Game]]" and the four tiers labelled as "captain", "co-pilot", "crew", and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labelled the tiers as "dessert", "main course", "side salad", and "appetizer". A person on the "dessert" course is the one at the top of the tree. Another variant "Treasure Traders" variously used [[gemology]] terms such as "polishers", "stone cutters", etc. or gems "rubies", "sapphires", "diamonds", etc. |
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[[File:Small Pyramid Schemes Still Lose Money.svg|thumb|At ten levels deep, the "airplane game" has an 87% loss rate.]] |
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Such schemes may try to downplay their pyramid nature by referring to themselves as "gifting circles" with money being "gifted". Popular scams such as the "Women Empowering Women"<ref>[http://www.guardian.co.uk/uk/2001/aug/05/tracymcveigh.theobserver Pyramid selling scam that preys on women to be banned]</ref> do exactly this. Joiners may even be told that "gifting" is a way to skirt around tax laws. |
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The eight passengers must each pay (or "gift") a sum (e.g., $5,000) to join the scheme. This sum (e.g., $40,000) goes to the captain, who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they advance through the crew and co-pilot tiers and exit the scheme as a captain. Therefore, the participants in the bottom three tiers of the pyramid lose their money if the scheme collapses. |
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Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme - the person at the top of this tree is the "captain", the two below are "co-pilots", the four below are "crew" and the bottom eight joiners are the "passengers". |
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If a person is using this model as a scam, the confidence trickster would take the majority of the money. They would do this by filling in the first three tiers (with one, two, and four people) with phony names, ensuring they get the first seven payouts, at eight times the buy-in sum, without paying anything themselves. So if the buy-in were $5,000, they would receive $40,000, paid for by the first eight [[Investor|investors]]. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible to allow them to skim even more from it before it collapses. |
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The eight passengers must each pay (or "gift") a sum (e.g. $1000) to join the scheme. This sum (e.g. $8000) goes to the captain who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they exit the scheme as a captain. This requires that 14 others have been persuaded to join underneath them. |
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Although the "captain" is the person at the top of the tree, having received the payment from the eight paying passengers, once they leave the scheme they are able to re-enter the pyramid as a "passenger" and hopefully recruit enough to reach captain again, thereby earning a second payout. |
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Therefore, the bottom 3 tiers of the pyramid ''always lose their money'' when the scheme finally collapses. Consider a pyramid consisting of tiers with 1, 2, 4, 8, 16, 32, and 64 members. The highlighted section corresponds to the previous diagram. |
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=== Blessing Loom === |
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[[Image:Pyramid8BallFull.svg|frame|right|100px|No matter how large the model becomes before collapse, approximately 88% of all people will lose.]] |
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[[File:Blessing Loom and 8-Ball Pyramid Schemes.svg|thumb|The "Blessing Loom" is identical to the classic "Airplane Game", with a circular diagram obscuring the pyramid structure.]] |
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If the scheme collapses at this point, only those in the 1, 2, 4, and 8 got out with a return. The remainder in the 16, 32, and 64 tier lose everything. 112 out of the total 127 members or 88% lost all of their money. |
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During a wave of pyramid activity, a surge frequently develops once a significant fraction of people know someone personally who exited with a $8000 payout for example. This spurs others to seek to get in on one of the many pyramids before the wave collapses. |
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Similar to the eight ball model, the '''Blessing Loom''' tricks potential investors by claiming to turn $100 into $800. This scheme has a circular structure, as increases in new recruits pushes individuals closer to the center of the circle, hence the "[[Loom]]" in the name. Each participant needs to recruit two people without providing them with any service or product. The scam often resurfaces online across the globe, under different aliases such as "loom circle" or "fractal mandala".<ref>{{Cite web |author=Okwe Mathias, Abuja |author2=Merlyn Mathews, Lagos |date=21 May 2019 |title=SEC declares 'Loom Money' illegal outfit |url=https://guardian.ng/business-services/sec-declares-loom-money-illegal-outfit/ |access-date=3 May 2022 |website=Guardian Nigeria}}</ref> The Blessing Loom scheme has been ruled as illegal in multiple US cities.<ref>{{cite web|author=ABC News |url=https://www.youtube.com/watch?v=UJm_DYtmo0U | archive-url=https://ghostarchive.org/varchive/youtube/20211104/UJm_DYtmo0U| archive-date=2021-11-04 | url-status=live| title=Police warn of 'blessing loom' scam |website = [[YouTube]]| date=2020-04-20}}{{cbignore}}</ref> |
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The figures also hide the fact that the confidence trickster would make the lion's share of the money. They would do this by filling in the first 3 tiers (with 1, 2, and 4 people) with phoney names, ensuring they get the first 7 payouts, at 8 times the buy-in sum, without paying a single penny themselves. So if the buy-in were $1000, they would receive $56,000, paid for by the first 56 investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible in order to allow them to skim even more from it before the collapse. |
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===Franchise fraud=== |
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Other cons may also be effective. For example, rather than using fake names, a group of seven people may agree to form the top three layers of a pyramid without investing any money. They then work to recruit eight paying passengers, and pretend to follow the pyramid payout rules, but in reality split any money received. Ironically, though they are being conned, the eight paying passengers are not really getting anything less for their money than if they were buying into a 'legitimate' pyramid which had split off from a parent pyramid. They truly are now in a valid pyramid, and have the same opportunity to earn a windfall if they can successfully recruit enough new members and reach captain. This highlights the fact that by 'buying' in to a pyramid, passengers are not really obtaining anything of value they couldn't create themselves other than a vague sense of "legitimacy" or history of the pyramid, which may make it marginally easier to sell passenger seats below them. |
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[[Franchise fraud]] is defined by the United States [[Federal Bureau of Investigation]] as a pyramid scheme. The FBI website states: |
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<blockquote>Pyramid schemes—also referred to as franchise fraud or chain referral schemes—are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses.<ref>{{cite web|url=https://www.fbi.gov/scams-safety/fraud |title=FBI — Common Fraud Schemes |publisher=Fbi.gov |access-date=2013-04-02}}</ref></blockquote> |
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== Matrix schemes == |
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{{main|Matrix scheme}} |
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=== Matrix schemes === |
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Matrix schemes use the same fraudulent non-sustainable system as a pyramid; here, the victims pay to join a waiting list for a desirable product which only a fraction of them can ever receive. Since matrix schemes follow the same laws of geometric progression as pyramids, they are subsequently as doomed to collapse. Such schemes operate as a queue, where the person at head of the queue receives an item such as a television, games console, digital camcorder, etc. when a certain number of new people join the end of the queue. For example ten joiners may be required for the person at the front to receive their item and leave the queue. Each joiner is required to buy an expensive but worthless item, such as an e-book, for their position in the queue. The scheme organizer profits because the income from joiners far exceeds the cost of sending out the item to the person at the front. Organizers can further profit by starting a scheme with a queue with ''shill'' names that must be cleared out before genuine people |
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{{Main|Matrix scheme}} |
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get to the front. The scheme collapses when no more people are willing to join the queue. Schemes may not reveal, or may attempt to exaggerate, a prospective joiner's queue position which essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis. |
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Matrix schemes use the same fraudulent, unsustainable system as a pyramid; here, the participants pay to join a waiting list for a desirable product, which only a fraction of them can ever receive. Since matrix schemes follow the same laws of geometric progression as pyramids, they are subsequently as doomed to collapse. |
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Such schemes operate as a queue, where the person at head of the queue receives an item such as a television, games console, digital camcorder, etc. when a certain number of new people join the end of the queue. For example, ten joiners may be required for the person at the front to receive their item and leave the queue. Each joiner is required to buy an expensive but potentially worthless item, such as an e-book, for their position in the queue. The scheme organizer profits because the income from joiners far exceeds the cost of sending out the item to the person at the front. Organizers can further profit by starting a scheme with a queue with [[shill]] names that must be cleared out before genuine people get to the front. The scheme collapses when no more people are willing to join the queue. |
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==Notable recent cases == |
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===Internet=== |
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In 2003, an internet-based "pyramid scam"<ref>[http://www.ftc.gov/opa/2003/07/nexgen.htm FTC Charges Internet Mall Is a Pyramid Scam] ''Federal Trade Commission''</ref> was uncovered by the [[Federal Trade Commission|United States Federal Trade Commission]] (FTC), where customers would pay a registration fee to join a program and purchase a package which included Internet mail and related goods and services. The FTC's complaint states that the company assured consumers who purchased the package that it would allow them to earn significant commissions for every website sold. |
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Schemes may not reveal, or may attempt to exaggerate, a prospective joiner's queue position, a condition that essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis. |
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The FTC alleged that the company deceptively represented that consumers who participated in their scheme would earn substantial income, when in fact most consumers lost money in the operation, and that the defendants provided deceptive marketing material to affiliates - providing them with the means to deceive others; and finally, the company failed to disclose that a substantial percentage of participants would lose money, and that the scheme was actually an illegal pyramid scheme. |
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== Relation to Ponzi schemes== |
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Pyramid schemes generally spread through emails, many of which may use confusing language, with the intent to make you think it is a [[multi-level marketing]] (MLM) scheme. MLM schemes have their share of detractors, but they are legal because they have a product to sell. Examples of successful MLM schemes are Amway, Tupperware, and Avon Products. The difference between MLM and pyramid schemes is that pyramid schemes do not offer a genuine product.<ref>[http://www.mysecurecyberspace.com/articles/statistics-trends/pyramid-schemes-and-other-frauds.html#msc.article.statistics.pyramidschemes MySecureCyberSpace] </ref> |
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While often confused with each other, pyramid schemes and [[Ponzi scheme]]s are different.<ref name="zuckoff">{{cite book|last1=Zuckoff|first1=Mitchell|title=Ponzi's scheme – the true story of a financial legend|date=10 January 2006|publisher=Random House Trade Paperbacks|location=New York|isbn=0-8129-6836-0}}</ref> Pyramid schemes are based on [[network marketing]], where each person in the pyramid is tasked with bringing in their own subordinates and in turn profiting from their sales or recruitments. This fails because it essentially requires an infinite number of people to join the company. In a Ponzi scheme, however, participants are promised returns on "investments", supposedly into stocks or goods, but which are actually paid for by new investors, while a central leading figure takes a portion as profit. |
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== Connection to multi-level marketing == |
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===Others=== |
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Some [[multi-level marketing]] (MLM) companies operate as pyramid schemes and consumers often confuse legitimate multi-level marketing with pyramid schemes.<ref name="Smith1984">{{cite book|last1=Smith|first1=Rodney K.|title=Multilevel Marketing|date=1984|publisher=Baker Publishing Group|isbn=0-8010-8243-9|page=45}}</ref><ref name="Keep2014">{{cite journal|last1=Keep|first1=William W|last2=Vander Nat|first2=Peter J.|title=Multilevel marketing and pyramid schemes in the United States: An historical analysis|journal=Journal of Historical Research in Marketing|date=2014|volume=6|issue=2|pages=188–210|doi=10.1108/JHRM-01-2014-0002|access-date=2016-03-26|url=http://business.pages.tcnj.edu/files/2014/02/Keep-and-Vander-Nat_MLM-and-Pyramid-Schemes_Final.pdf|archive-url=https://web.archive.org/web/20160412102646/http://business.pages.tcnj.edu/files/2014/02/Keep-and-Vander-Nat_MLM-and-Pyramid-Schemes_Final.pdf|archive-date=2016-04-12}}</ref><ref name="Valentine Speech">{{cite web|last1=Valentine|first1=Debra|title=Pyramid Schemes|date=May 13, 1998|url=https://www.ftc.gov/public-statements/1998/05/pyramid-schemes|publisher=Federal Trade Commission|access-date=2016-03-25|archive-url=https://web.archive.org/web/20220526165547/http://www.ftc.gov/news-events/news/speeches/pyramid-schemes|archive-date=2022-05-26}}</ref><ref>{{Cite book| last = Edwards | first = Paul | title = Franchising & licensing: two powerful ways to grow your business in any economy | publisher = Tarcher | year = 1997 | page = 356 | isbn = 0-87477-898-0}}</ref> |
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In early 2006 [[Ireland]] was hit by a wave of schemes with major activity in [[Cork (city)|Cork]] and [[Galway]]. Participants were asked to contribute €20,000 each to a "Liberty" scheme which followed the classic 8-ball model. Payments were made in [[Munich]], [[Germany]] to skirt Irish tax laws concerning gifts. Spin-off schemes called "Speedball" and "People in Profit" prompted a number of violent incidents and calls were made by politicians to tighten existing legislation.<ref>[http://archives.tcm.ie/irishexaminer/2006/03/23/story514972170.asp Gardaí hold firearm after pyramid scheme incident] ''Irish Examiner''</ref> Ireland has launched a website to better educate consumers to pyramid schemes and other scams.<ref>[http://www.consumerconnect.ie/eng/ National Consumer Agency Ireland]</ref> |
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According to the U.S. [[Federal Trade Commission]] (FTC) legitimate MLM businesses are distinguished from pyramid schemes by participants making money primarily from product sales, rather than recruitment:<ref name="PS_USA_1998">{{cite web|url=https://www.ftc.gov/public-statements/1998/05/pyramid-schemes|title=Pyramid Schemes|date=18 July 2013}}</ref> |
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On [[November 12]], [[2008]] riots broke out in the municipalities of [[Pasto]], [[Tumaco]], [[Popayan]] and [[Santander de Quilichao]], [[Colombia]] after the collapse of several pyramid schemes. Thousands of victims had invested their money in pyramids that promised them extraordinary interest rates. The lack of regulation by the [[Colombian government]] has allowed certain unscrupulous individuals to take advantage of naive investors. Colombia's President, Mr. Alvaro Uribe, took measures to stop the scheme and various of the pyramid's heads were arrested and are in jail.<ref>http://news.bbc.co.uk/2/hi/americas/7726069.stm</ref> |
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<blockquote>Not all multi-level marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it's probably not. It could be a pyramid scheme.<ref name="MLM_USA">{{cite web|url=https://www.ftc.gov/tips-advice/business-center/guidance/multilevel-marketing|title=Multilevel Marketing|date=14 July 2016}}</ref></blockquote> |
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November 2008: The Kyiv Post reported on November 26th 2008 that American citizen Robert Fletcher (Robert T. Fletcher III; aka "Rob") was arrested by the SBU (Ukraine State Police) after being accused by Ukrainian investors of running a ponzi scheme and associated pyramid scam netting $20 Million USD (Kiev Post also reports that some estimates are as high as $150M USD). |
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In contrast, pyramid schemes "may purport to sell a product", but often "simply use the product to hide their pyramid structure".<ref name="Valentine Speech"/> While some people call MLMs in general "pyramid selling",<ref>{{Cite book |last=Clegg |first=Brian |title=The invisible customer: strategies for successive customer service down the wire |publisher=Kogan Page |year=2000 |page=112 |isbn=0-7494-3144-X}}</ref><ref>{{Cite book |last1=Higgs |first1=Philip |last2=Smith |first2=Jane |title=Rethinking Our World |publisher=Juta Academic |year=2007 |page=30 |isbn=978-0-7021-7255-7}}</ref><ref>{{Cite book |last=Kitching |first=Trevor |title=Purchasing scams and how to avoid them |publisher=Gower Publishing Company |year=2001 |page=4 |isbn=0-566-08281-0}}</ref><ref>{{Cite book |last=Mendelsohn |first=Martin |title=The guide to franchising |publisher=Cengage Learning Business Press |year=2004 |page=36 |isbn=1-84480-162-4}}</ref> others use the term to denote an illegal pyramid scheme masquerading as a MLM.<ref>{{Cite book |last=Blythe |first=Jim |title=Sales & Key Account Management |publisher=Cengage Learning Business Press |year=2004 |page=278 |isbn=1-84480-023-7}}</ref> |
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In early 2008, allegations of cheating were made against QuestNet India based on an unverified complaint from a single customer which received intense media attention leading to mass panic among the public. Many customers filed complaints against the company and the MD of Questnet India, Ms. Pushpam was taken into police custody where she remained for five months. <ref>http://www.hindu.com/2008/05/25/stories/2008052560330100.htm</ref> Based on media reports, it is learnt that various allegations have been made about the company having defrauded people of several hundred [[crore]]s of [[rupee]]s (i.e. several thousand million rupees). Police in Tamilnadu state are currently investigating the complaints and Ms.Pushpam has been released on bail. No charge sheet has been filed against the company so far. The company has denied all allegations against it and has stated repeatedly through advertisements in newspapers that it runs a legitimate network marketing business. The company has pointed out that due to lack of any legislation governing network marketing, direct sales or Multi-Level marketing industries in India, there is a lack of awareness about the business model and hence is open to misinterpretation and misrepresentation that leads to complaints from customers who do not fully understand what they are signing up for. |
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The U.S. Federal Trade Commission warns against becoming involved "in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products."<ref name="ftc.gov">{{cite web |url=http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv08.shtm |title=Multilevel Marketing |date=4 January 2018 |publisher=Federal Trade Commission |access-date=2018-06-20 |quote=There are multi-level marketing plans – and then there are pyramid schemes. Before signing on the dotted line, study the company's track record, ask lots of questions, and seek out independent opinions about the business.}}</ref> |
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==References== |
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{{reflist}} |
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Some commentators contend that MLMs in general are nothing more than legalized pyramid schemes.<ref name="Carroll 2003 235">{{cite book |last=Carroll |first=Robert Todd |title=The Skeptic's Dictionary: A Collection of Strange Beliefs, Amusing Deceptions, and Dangerous Delusions |publisher=Wiley |year=2003 |page=[https://archive.org/details/skepticsdictiona00carr_024/page/n241 235] |url=https://archive.org/details/skepticsdictiona00carr_024 |url-access=limited |isbn=0-471-27242-6}}</ref><ref name="Coenen 2009 168">{{cite book |last=Coenen |first=Tracy |title=Expert Fraud Investigation: A Step-by-Step Guide |publisher=Wiley |year=2009 |page=[https://archive.org/details/expertfraudinves00coen_262/page/n172 168] |url=https://archive.org/details/expertfraudinves00coen_262 |url-access=limited |isbn=978-0-470-38796-2}}</ref><ref name="Salinger Editor 2005 880">{{Cite book |editor-last=Salinger |editor-first=Lawrence M. |title=Encyclopedia of White-Collar & Corporate Crime |publisher=Sage Publishing |year=2005 |volume=2 |page=880 |isbn=0-7619-3004-3}}</ref> There are different laws in every state, and they take different actions toward pyramid schemes, but multi-level-marketing is legal.<ref>{{Cite web|url=https://criminal.findlaw.com/criminal-charges/pyramid-schemes.html|title=Pyramid Schemes|website=Findlaw|language=en-US|access-date=2019-03-29}}</ref> Multi-level marketing lobbying groups have pressured US government regulators to maintain the legal status of such schemes.<ref>{{Cite web|url=https://www.theverge.com/2014/4/8/5590550/alleged-pyramid-schemes-lobbying-ftc|title=How lobbying dollars prop up pyramid schemes|website=TheVerge|date=8 April 2014|language=en-US|access-date=2019-08-20}}</ref> |
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== Legality == |
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Pyramid schemes are illegal in many countries or regions including [[Albania]],<ref>{{Cite journal |last=Jarvis |first=Christopher |date=March 2000 |title=The Rise and Fall of Albania's Pyramid Schemes |url=http://www.scamwatch.gov.au/content/index.phtml/itemId/694266|archive-url=https://web.archive.org/web/20120406122435/http://www.scamwatch.gov.au/content/index.phtml/itemId/694266 |archive-date=6 April 2012 }}</ref><ref>{{cite web|url=http://www.austlii.edu.au/au/legis/cth/consol_act/caca2010265/sch2.html#_Toc320188009 |title=Competition and Consumer Act 2010 – Schedule 2, Division 3 – Pyramid schemes |publisher=Austlii.edu.au |access-date=2013-04-02}}</ref> [[Austria]], [[Belgium]],<ref>{{Cite web |url=http://economie.fgov.be/nl/geschillen/klachten/welke_klachten_terecht_ADCB/Verkopen/Piramideverkoop/ |title=Piramideverkoop - Geschillen en klachten - Home |access-date=2014-10-09 |archive-url=https://web.archive.org/web/20141015061007/http://economie.fgov.be/nl/geschillen/klachten/welke_klachten_terecht_ADCB/Verkopen/Piramideverkoop/ |archive-date=2014-10-15 }}</ref> [[Bahrain]], [[Bangladesh]],<ref>{{Cite web|date=2013-09-06|title=Govt bans pyramid marketing|url=https://www.thedailystar.net/news/govt-bans-pyramid-marketing|access-date=2020-06-14|website=[[The Daily Star (Bangladesh)|The Daily Star]]|language=en}}</ref> [[Brazil]], [[Canada]],<ref>{{Cite web|url=http://www.antifraudcentre-centreantifraude.ca/fraud-escroquerie/types/pyramid-pyramide/index-eng.htm|title=Pyramid scams|date=March 11, 2015|website=antifraudcentre-centreantifraude.ca|access-date=November 2, 2018|archive-date=November 13, 2018|archive-url=https://web.archive.org/web/20181113045155/http://www.antifraudcentre-centreantifraude.ca/fraud-escroquerie/types/pyramid-pyramide/index-eng.htm|url-status=dead}}</ref> [[People's Republic of China|China]],<ref name="Regulation on Prohibition of Pyramid Selling">{{cite web |url=http://www.fdi.gov.cn/1800000121_39_767_0_7.html |title=Regulation on Prohibition of Pyramid Selling |publisher=fdi.gov.cn |access-date=2019-01-23 |archive-date=2019-01-23 |archive-url=https://web.archive.org/web/20190123223635/http://www.fdi.gov.cn/1800000121_39_767_0_7.html }}</ref> [[Colombia]],<ref>{{cite news| url=http://news.bbc.co.uk/1/hi/world/americas/7736124.stm | work=BBC News | title=Colombia scam: 'I lost my money' | date=November 18, 2008 | access-date=2010-04-12}}</ref> [[Denmark]], the [[Dominican Republic]],<ref>{{cite web|url=http://www.camaradediputados.gov.do/masterlex/mlx/docs/24/106/1BA5/5FFE/6000.pdf|title=Proyecto De Ley Que Prohíbe La Venta Bajo El Esquema Piramidal|language=es|access-date=2011-02-23|archive-url=https://web.archive.org/web/20160429134532/http://www.camaradediputados.gov.do/masterlex/mlx/docs/24/106/1BA5/5FFE/6000.pdf|archive-date=2016-04-29}}</ref> [[Estonia]],<ref>{{cite web|url=https://www.riigiteataja.ee/ert/act.jsp?id=13328494|title=Tarbijakaitseseadus|language=et|trans-title=The Consumer Protection Law of Estonia|at=§12{{sup|3}}(8) #14|access-date=2010-10-11}}</ref> [[Finland]],<ref>[[Money Collection Act|Rahankeräyslaki 255/2006]] – {{Cite web|url=http://www.finlex.fi/fi/laki/ajantasa/2006/20060255|title=Rahankeräyslaki 255/2006 – Ajantasainen lainsäädäntö – FINLEX ®}}</ref> [[France]],<ref>{{Cite CiteSeerX |date=November 1999 |title=Door to Door Selling – Pyramid Selling – Multilevel Marketing |page=130|citeseerx=10.1.1.129.8742 }}</ref> [[Germany]], [[Hong Kong]],<ref>{{Cite Hong Kong ordinance|name=Pyramid Schemes Prohibition Ordinance|617|5}}</ref> [[Hungary]],<ref>{{cite web |title=Act C of 2012 on the Criminal Code – Section 412: Organising a pyramid scheme|url=https://njt.hu/translation/J2012T0100P_20210708_FIN.pdf |website=National Legislation Database |publisher=Ministry of Justice of Hungary |access-date=13 February 2022 |archive-url=https://web.archive.org/web/20211213061112/https://njt.hu/translation/J2012T0100P_20210708_FIN.pdf |archive-date=13 December 2021 |page=138 |url-status=live}}</ref> [[Iceland]], [[India]],<ref name="indiatimes">{{cite web|url=https://timesofindia.indiatimes.com/business/india-business/RBI-warns-against-pyramid-schemes/articleshow/45724589.cms|title=RBI warns against pyramid schemes|website=The Times of India|date=2015-01-02|access-date=2020-12-20}}</ref> [[Indonesia]],<ref>{{cite web |title=Skema Piramida Dilarang, Nasabah Terlindungi |url=https://www.finansialku.com/skema-piramida-dilarang-nasabah-terlindungi/ |website=Finansialku.com |date=15 February 2014 |access-date=2019-10-28}}</ref> [[Iran]],<ref>{{Cite web |last=IRB – Immigration and Refugee Board of Canada |date=24 March 2010 |title=IRB – Immigration and Refugee Board of Canada: The company Goldmine International; treatment of people affiliated with the company by Iranian authorities |url=http://www.irb-cisr.gc.ca:8080/RIR_RDI/RIR_RDI.aspx?id=452855&l=e |archive-url=https://web.archive.org/web/20100324000000/http://www.irb-cisr.gc.ca:8080/RIR_RDI/RIR_RDI.aspx?id=452855&l=e |archive-date=24 March 2010 |access-date=3 May 2022 |website=European Country of Origin Information Network}} [https://www.ecoi.net/en/document/1098047.html Alt URL]</ref> [[Republic of Ireland|Ireland]],<ref>{{cite web|url=http://www.consumerhelp.ie/pyramid-schemes |title=Pyramid Schemes |publisher=Competition and Consumer Protection Commission |access-date=2015-06-12}}</ref> [[Italy]],<ref>{{Cite web|url=http://www.parlamento.it/parlam/leggi/05173l.htm|title=L 173/2005|website=parlamento.it}}</ref> [[Japan]],<ref>[http://law.e-gov.go.jp/htmldata/S53/S53HO101.html 無限連鎖講の防止に関する法律] {{Webarchive|url=https://web.archive.org/web/20090627130247/http://law.e-gov.go.jp/htmldata/S53/S53HO101.html |date=2009-06-27 }} (in Japanese)</ref> [[Malaysia]],<ref>{{Cite web |last=The Commissioner of Law revision, Malaysia Under the Authority of the Revision of Laws Act 1968 |date=1 March 2013 |title=Direct Sales and Anti-Pyramid Scheme Act 1993 (Act 500) |url=https://www.kpdnhep.gov.my/images/dokumen/awam/perundangan/AktaBI/7-bi-Direct-Sales-and-Anti-Pyramid-Scheme-Act-1993-reprint-2013.pdf |archive-url=https://web.archive.org/web/20220715063453/https://www.kpdnhep.gov.my/images/dokumen/awam/perundangan/AktaBI/7-bi-Direct-Sales-and-Anti-Pyramid-Scheme-Act-1993-reprint-2013.pdf |archive-date=2022-07-15 |url-status=live}}</ref> the [[Maldives]], [[Mexico]], [[Nepal]], the [[Netherlands]],<ref name="Sentence by the High Council of the Netherlands regarding a pyramid scheme">{{cite web |url=http://zoeken.rechtspraak.nl/resultpage.aspx?snelzoeken=true&searchtype=ljn&ljn=AR8424&u_ljn=AR8424 |title=Sentence by the High Council of the Netherlands regarding a pyramid scheme |publisher=Zoeken.rechtspraak.nl |access-date=2013-04-02 |archive-date=2013-06-19 |archive-url=https://web.archive.org/web/20130619033742/http://zoeken.rechtspraak.nl/resultpage.aspx?snelzoeken=true&searchtype=ljn&ljn=AR8424&u_ljn=AR8424 }}</ref> [[New Zealand]],<ref>[https://comcom.govt.nz/consumers/dealing-with-typical-situations/pyramid-schemes Pyramid Schemes] ''Commerce Commission of New Zealand''</ref> [[Norway]],<ref>{{cite web|url=http://www.lovdata.no/all/tl-19950224-011-004.html#16 |title=Lovdata.no |publisher=Lovdata.no |access-date=2013-04-02}}</ref> [[Oman]], |
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[[Peru]], the [[Philippines]],<ref>[https://query.nytimes.com/gst/fullpage.html?res=9C05E4DA1539F933A05750C0A9659C8B63 NYtimes.com], "Investors in Philippine Pyramid Scheme Lose over $2 Billion"</ref> [[Poland]],<ref>{{Cite web |date=22 January 2021 |title=First penalty imposed for soliciting into so-called pyramid-type schemes |url=https://uokik.gov.pl/news.php?news_id=17179 |publisher=Office of Competition and Consumer Protection}}</ref> [[Portugal]], [[Romania]],<ref>[http://www.ziua.ro/display.php?data=2006-07-12&id=203369 Explozia piramidelor] {{Webarchive|url=https://web.archive.org/web/20160506094455/http://www.ziua.ro/display.php?data=2006-07-12&id=203369 |date=2016-05-06 }} ''Ziarul Ziua, 12.07.2006''</ref> [[Russia]], [[Serbia]],<ref name="paragraf">{{cite web|url=http://www.paragraf.rs/propisi/zakon_o_trgovini.html|title=Zakon o trgovini | Republika SRBIJA|website=Paragraf|access-date=2020-12-20}}</ref> [[South Africa]],<ref>[http://www.whitecollarcrime.co.za/news.php?item.95 Whitecollarcrime.co.za] {{Webarchive|url=https://web.archive.org/web/20081201060359/http://www.whitecollarcrime.co.za/news.php?item.95 |date=2008-12-01 }}, Pyramid Schemes</ref> [[Singapore]],<ref>{{Singapore legislation|title=Multi-Level Marketing and Pyramid Selling (Prohibition) Act|cap=190|ed=2000}}, section 3</ref> [[Spain]], [[Ethiopia]], [[Sri Lanka]],<ref>[http://www.documents.gov.lk/files/act/2005/2/02-2005_E.pdf Pyramid Schemes Illegal Under Section 83c of the Banking Act of Sri Lanka] Department of Government Printing, Sri Lanka</ref> [[Sweden]],<ref>[http://lagen.nu/2008:487 lagen.nu] – Tillkännagivande (2008:487) med anledning av marknadsföringslagen (2008:486)</ref> [[Switzerland]], [[Taiwan]], [[Thailand]],<ref name="สมาคมการขายตรงไทย">[http://www.tdsa.org/download/piramid.pdf TDSA.gov] {{webarchive|url=https://web.archive.org/web/20090220075443/http://tdsa.org/download/piramid.pdf |archive-url=https://web.archive.org/web/20060506235813/http://tdsa.org/download/piramid.pdf |archive-date=2006-05-06 |url-status=live |date=2009-02-20 }}, ข้อมูลเพิ่มเติมในระบบธุรกิจขายตรงและธุรกิจพีระมิด by Thai Direct Selling Association (in Thai)</ref> [[Trinidad and Tobago]],<ref> {{cite web |url=https://tt.loopnews.com/content/government-outlaws-ponzi-pyramid-schemes|title=Government outlaws ponzi, pyramid schemes. |publisher=tt.loopnews.com |date=2022-11-16 |access-date=2023-10-03}}</ref> [[Turkey]],<ref>{{cite web|url=http://www.cnnturk.com/2010/turkiye/05/14/saadet.zinciri.operasyonu.60.gozalti/576283.0/index.html |title=Saadet zinciri operasyonu: 60 gözaltı |publisher=Cnnturk.com |date=2010-05-14 |access-date=2013-04-02}}</ref> [[Ukraine]],<ref>[http://en.interfax.com.ua/news/general/175882.html Rada at first reading passes bill on banning financial pyramid schemes in Ukraine], [[Interfax-Ukraine]] (20 November 2013)</ref> the [[United Kingdom]],<ref>{{cite web|title=Pyramid scheme fraud|url=http://www.actionfraud.police.uk/fraud_protection/pyramid_schemes|website=[[Action Fraud]]|publisher=[[City of London Police]]|access-date=2016-07-05}}</ref> and the [[United States]].<ref name="Valentine Speech"/> |
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== Notable cases == |
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The [[1997 Albanian civil unrest]] was partially motivated by the collapse of [[Ponzi scheme|Ponzi schemes]]; however, they were widely referred to as pyramid schemes due to their prevalence in Albanian society.<ref>{{Cite web |url=http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm |title=Finance and Development |website=Finance and Development {{!}} F&D |language=en-US |access-date=2018-07-04}}</ref>{{what|date=June 2024}} |
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In 2003, the United States [[Federal Trade Commission]] (FTC) disclosed what it called an Internet-based "pyramid scam." Its complaint states that customers would pay a registration fee to join a program that called itself an "internet mall" and purchase a package of [[goods and services]] such as internet mail, and that the company offered "significant commissions" to consumers who purchased and resold the package. The FTC alleged that the company's program was instead and in reality a pyramid scheme that did not disclose that most consumers' money would be kept, and that it gave affiliates material that allowed them to scam others.<ref name="ftc-internetmall">[http://www.ftc.gov/opa/2003/07/nexgen.htm FTC Charges Internet Mall Is a Pyramid Scam] ''Federal Trade Commission''</ref> |
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[[WinCapita]] was a scheme run by Finnish criminals that involved about €100 million. The scheme started in 2005.<ref>{{Cite web |url=https://yle.fi/uutiset/osasto/news/ss_some_wincapita_ponzi_scheme_victims_to_soon_receive_compensation/9185950 |title=SS: Some WinCapita Ponzi scheme victims to soon receive compensation |website=Yle Uutiset |date=22 September 2016 |language=en |access-date=2018-07-04}}</ref> |
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In early 2006, [[Republic of Ireland|Ireland]] was hit by a wave of schemes with major activity in [[Cork (city)|Cork]] and [[Galway]]. Participants were asked to contribute €20,000 each to a "Liberty" scheme which followed the classic eight-ball model. Payments were made in [[Munich]], [[Germany]], to skirt Irish tax laws concerning gifts. Spin-off schemes called "Speedball" and "People in Profit" prompted a number of violent incidents and calls were made by politicians to tighten existing legislation.<ref>[http://archives.tcm.ie/irishexaminer/2006/03/23/story514972170.asp Gardaí hold firearm after pyramid scheme incident] {{webarchive|url=https://web.archive.org/web/20080323234753/http://archives.tcm.ie/irishexaminer/2006/03/23/story514972170.asp |date=2008-03-23 }} ''Irish Examiner''</ref> Ireland has launched a website to better educate consumers to pyramid schemes and other scams.<ref>{{cite web|url=http://www.consumerconnect.ie/eng/ |title=National Consumer Agency Ireland |publisher=Consumerconnect.ie |access-date=2013-04-02}}</ref> |
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On 12 November 2008, riots broke out in the municipalities of [[Pasto (Colombia)|Pasto]], [[Tumaco]], [[Popayán]] and [[Santander de Quilichao]], [[Colombia]], after the collapse of several pyramid schemes. Thousands of victims had invested their money in pyramids that promised them extraordinary interest rates. The lack of regulatory laws allowed those pyramids to grow excessively for several years. Finally, after the riots, the Colombian government was forced to declare the country in a state of economic emergency to seize and stop those schemes. Several of the pyramid's managers were arrested, and prosecuted for the crime of "illegal massive money reception."<ref>{{Cite video |
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| title = Colombians riot over pyramid scam |
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| publisher = [[BBC News]] |
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| location = Colombia |
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| url =http://news.bbc.co.uk/2/hi/americas/7726069.stm |
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| date = Nov 13, 2008}}</ref> |
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The ''[[Kyiv Post]]'' reported on 26 November 2008 that American citizen Robert Fletcher (Robert T. Fletcher III; aka "Rob") was arrested by the SBU (Ukraine State Police) after being accused by Ukrainian investors of running a Ponzi scheme and associated pyramid scam netting US$20 million. (The ''Kyiv Post'' also reported that some estimates were as high as US$150 million.)<ref>{{Cite news |url=https://www.kyivpost.com/article/content/ukraine-politics/caught-american-arrested-in-kyiv-on-suspicion-of-f-31310.html |title=Caught! American arrested in Kyiv on suspicion of fraud – Nov. 26, 2008 |date=2008-11-26 |newspaper=Kyiv Post |language=en-US |access-date=2018-07-04|last1=Rachkevych |first1=Mark }}</ref> |
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In the United Kingdom in 2008 and 2009, a £21 million pyramid scheme named 'Give and Take' involved at least 10,000 victims in the south-west of England and South Wales. Leaders of the scheme were prosecuted and served time in jail before being ordered to pay £500,000 in compensation and costs in 2015. The cost of bringing the prosecution was in excess of £1.4 million.<ref>{{cite web|url=https://www.bbc.co.uk/news/uk-england-bristol-34242680|title=Prosecuting members of a £21m pyramid scheme cost taxpayers £1.4m|date=14 September 2015|website=bbc.co.uk}}</ref> |
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A number of authorities around the world declared TVI Express to be a pyramid scheme in 2010 and 2011, including the [[Australian Competition & Consumer Commission]], the [[Bank of Namibia]], and the [[Central Bank of Lesotho]]. TVI Express, operated by Tarun Trikha from India, has apparently recruited hundreds of thousands of "investors", very few of whom, it is reported, have recouped any of their investment.<ref name="ACCC-TVIExpress">[http://www.accc.gov.au/content/index.phtml/itemId/928564/fromItemId/142 ACCC obtains restraining orders against operators of alleged pyramid selling scheme TVI Express] {{webarchive|url=https://web.archive.org/web/20110602080313/http://www.accc.gov.au/content/index.phtml/itemId/928564/fromItemId/142 |date=2011-06-02 }} ''Australian Competition and Consumer Commission''</ref><ref name="Namibia-TVIExpress">[http://www.republikein.com.na/die-mark/bon-warns-public.115812.php BoN warns public about TVI Express] {{Webarchive|url=https://web.archive.org/web/20111004065745/http://www.republikein.com.na/die-mark/bon-warns-public.115812.php |date=2011-10-04 }} ''Bank of Namibia''</ref><ref name="Lesotho-TVIExpress">[http://www.centralbank.org.ls/news/TVI%20Express.htm BoL warns public about TVI Express] {{webarchive|url=https://web.archive.org/web/20111003001143/http://www.centralbank.org.ls/news/TVI%20Express.htm |date=2011-10-03 }} ''Bank of Lesotho''</ref><ref name="LE-TVIExpress">[http://www.timeslive.co.za/news/2011/08/14/promises-broken-claim-cops South African Sunday Times on TVI Express] ''[[Sunday Times (South Africa)]]''</ref><ref name="CWBotswana">[http://consumerwatchdogbw.blogspot.com/search/label/TVI%20Express Consumer Watchdog Botswana on TVI Express] ''Consumer Watchdog Botswana''</ref> |
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[[BurnLounge]], Inc. was a multi-level marketing [[online music store]] founded in 2004 and based in New York City. By 2006 the company reported 30,000 members using the site to sell music through its network. In 2007, the Federal Trade Commission sued the company for being an illegal pyramid scheme. The company lost the suit in 2012, and lost appeal in June 2014. In June 2015, the FTC began returning $1.9 million to people who had lost money in the scheme.<ref>{{cite news|last1=Hull|first1=Tim|title=9th Circuit Affirms BurnLounge Judgment|url=http://www.courthousenews.com/2014/06/02/68376.htm|access-date=2014-06-19|work=[[Courthouse News Service]]|date=2 June 2014}}</ref> |
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In August 2015, the United States FTC filed a lawsuit against [[Vemma|Vemma Nutrition Company]], an Arizona-based [[dietary supplement]] Multi-Level Marketing firm, accused of operating an illegal pyramid scheme. In December 2016, Vemma agreed to a $238 million settlement with the FTC, which banned the company from "pyramid scheme practices" including recruitment-focused business ventures, deceptive income claims, and unsubstantiated health claims.<ref>{{cite web|title=Vemma Agrees to Ban on Pyramid Scheme Practices to Settle FTC Charges|url=https://www.ftc.gov/news-events/press-releases/2016/12/vemma-agrees-ban-pyramid-scheme-practices-settle-ftc-charges|website=FTC.gov|date=15 December 2016 |access-date=2016-12-22}}</ref><ref>{{cite web|title=Vemma reaches $238 million settlement with FTC|url=https://www.truthinadvertising.org/vemma-pay-millions-settlement-ftc/|website=TruthInAdvertising.org|access-date=2016-12-22}}</ref> |
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In March 2017, Ufun Store registered as an online business for its members as a direct-sales company was declared operating a pyramid scheme in Thailand. The Criminal Court handed down prison terms totaling 12,265 to 12,267 years to 22 people convicted over the scheme, which conned about 120,000 people out of more than 20 billion baht.<ref>{{Cite news|title=Ufun fraudsters sentenced to thousands of years|url=https://www.bangkokpost.com/thailand/general/1219257/ufun-fraudsters-sentenced-to-thousands-of-years|access-date=2020-08-08|newspaper=Bangkok Post|date=22 March 2017 }}</ref> |
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The Airplane Game scheme resurfaced in 2020 as a savings club by the name of the Blessing Loom, Blessing Circle, Sending Flower, Gifting Flower, and so on. It is also misrepresented as a [[Susu (informal loan club)|Sou-Sou]], a legitimate savings club model where the number of people paying into the pot is fixed and each person gets a payout on regular basis. This is distinct from the pyramid scheme variation making use of the hierarchical flower model,<ref>{{Cite web|title=BE AWARE: 'Blessing Loom' scam is resurfacing on social media|url=https://www.cbs19.tv/article/news/local/be-aware-blessing-loom-scam-is-resurfacing-on-social-media/501-63996499-0136-4203-8c7e-2e6221bf5fe4|access-date=2020-08-08|website=cbs19.tv|date=21 April 2020 |language=en-US}}</ref> where new members are continually recruited into the group by people at the edges of the flower. This re-imagining of the old Airplane/8-ball model is making a resurgence on social media platforms such as [[Instagram]] and Zoom.<ref>{{cite web|title=Blessing Loom Ponzi Scam: Beware|url=https://www.onlinethreatalerts.com/article/2020/4/20/blessing-loom-ponzi-scam/|website=OnlineThreatAlerts.com|access-date=2020-07-07}}</ref><ref>{{cite web|title='Blessing looms' pyramid scheme sweeps across Houston|url=https://www.click2houston.com/news/2016/12/08/blessing-looms-pyramid-scheme-sweeps-across-houston/|website=Click2Houston.com|date=8 December 2016 |access-date=2020-07-07}}</ref> |
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==See also== |
==See also== |
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*[[Amway]] |
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*[[Autosurfing]] |
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*[[ |
*[[Aman Futures Group]] |
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*[[BurnLounge]] |
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*[[High-yield investment program]] |
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*[[Social Security debate in the United States#Pyramid or Ponzi scheme claims|Claims of Social Security in the US as a pyramid scheme]] |
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*[[Cryptocurrency]] |
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*[[Elite Activity]] |
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*[[Gift]] |
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*[[Holiday Magic]] |
*[[Holiday Magic]] |
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*[[Make Money Fast]] |
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*[[Non-fungible tokens]] |
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*[[Nouveau Riche (college)]] |
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*[[Qnet]] |
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*[[Ponzi scheme]] |
*[[Ponzi scheme]] |
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*[[ |
*[[Success University]] |
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*[[ |
*[[The Cobra Group]] |
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{{colend}} |
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*[[Multi-level marketing]] |
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*[[Vector Marketing]] |
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== References == |
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{{Reflist}} |
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* ''The Fraudsters: How Con Artists Steal Your Money'', Chapter 9, "Pyramids of Sand" ({{ISBN|978-1-903582-82-4}}) by Eamon Dillon, published September 2008 by Merlin Publishing, Ireland. |
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==External links== |
==External links== |
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*{{Commons category-inline|Pyramid and Ponzi schemes}} |
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*[http://www.dillonthompson.com/dtig/pyramid.html An information graphic that describes a pyramid scheme] |
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*[https://rn.ftc.gov/pls/dod/wsolcq%24.startup%3fZ_ORG_CODE%3dPU01 FTC consumer complaint form] |
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*[http://www.cashgiftingwatchdog.com Cash Gifting Watchdog] |
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*[http://www.fraudsandscams.com/pyramid.htm Article by Financial Crimes Investigator, Bill E. Branscum] |
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*[http://www.mr-shouty-trousers.com/You-re-only-5-Minutes-Away-From-Becoming-a-Millionaire Spoof article] |
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*[http://www.mathmotivation.com/money/pyramid-scheme.html The Math Behind Pyramid Schemes, Chain Letters, and 2-Up Schemes] - Investigates the mathematics of the geometric series involved. |
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*[http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm IMF feature on "The Rise and Fall of Albania's Pyramid Schemes"] |
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*[http://www.cockeyed.com/ebay/scam/laptop_pyramids.html Cockeyed.com presents: Pyramid Schemes] - A thorough description of the 8-ball model and matrix schemes which is a close cousin to pyramid schemes. |
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*[http://www.consumerconnect.ie/eng/Hot_Topics/Scams/Pyramid%20Schemes/ National Consumer Agency on Pyramid Schemes] - Irish consumer site describes two local pyramid schemes and offers advice to would-be participants. |
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*[http://www.consumerconnect.ie/eng/ National Consumer Agency Ireland] |
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*[http://www.comlaw.gov.au/comlaw/Legislation/Act1.nsf/0/5A0DC6C047FFEA5ACA256F72000F75F1/$file/1282002.pdf Australian Trade Practices Amendment Act (No. 1) 2002] Australian Law Online |
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*[http://www.cbsl.gov.lk/pics_n_docs/02_prs/_docs/notices/notice_20070430.pdf Public Warning on Pyramid Schemes] Central Bank of Sri Lanka |
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{{Confidence Tricks}} |
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{{Scams and confidence tricks}} |
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{{Authority control}} |
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{{DEFAULTSORT:Pyramid Scheme}} |
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[[Category:Pyramid and Ponzi schemes| ]] |
[[Category:Pyramid and Ponzi schemes| ]] |
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[[Category:Confidence tricks]] |
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[[Category:Types of marketing]] |
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[[Category:Marketing]] |
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[[af:Piramideskema]] |
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[[ca:Cèl·lules de l'abundància]] |
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[[cs:Pyramidové schéma]] |
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[[da:Pyramideforetagende]] |
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[[de:Schneeballsystem]] |
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[[es:Esquema de pirámide]] |
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[[fa:ترفند هرمی]] |
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[[fr:Vente pyramidale]] |
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[[it:Marketing piramidale]] |
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[[ja:無限連鎖講]] |
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[[no:Pyramidespill]] |
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[[pl:Piramida finansowa]] |
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[[pt:Esquema em pirâmide]] |
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[[th:ธุรกิจแบบพีระมิด]] |
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Latest revision as of 06:47, 18 December 2024
 | The article's lead section may need to be rewritten. (July 2024) |
A pyramid scheme is a business model which, rather than earning money (or providing returns on investments) by sale of legitimate products to an end consumer, mainly earns money by recruiting new members with the promise of payments (or services).[1][2] As the number of members multiplies, recruiting quickly becomes increasingly difficult until it is impossible, and therefore most of the newer recruits do not make a profit. As such, pyramid schemes are unsustainable. The unsustainable nature of pyramid schemes has led to most countries outlawing them as a form of fraud.
Pyramid schemes have existed since at least the mid-to-late 19th century in different guises. Some multi-level marketing plans have been classified as pyramid schemes.[3]
Concept and basic models
[edit]In a pyramid scheme, an organization compels individuals who wish to join to make a payment. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit. The directors of the organization (those at the top of the pyramid) also receive a share of these payments. For the directors, the scheme is potentially lucrative—whether or not they do any work, the organization's membership has a strong incentive to continue recruiting and funneling money to the top of the pyramid.
Such organizations seldom involve sales of products or services with value. Without creating any goods or services, the only revenue streams for the scheme are recruiting more members or soliciting more money from current members. The behavior of pyramid schemes follows the mathematics concerning exponential growth quite closely. Each level of the pyramid is much larger than the one before it. For a pyramid scheme to make money for everyone who enrolls in it, it would have to expand indefinitely. When the scheme inevitably runs out of new recruits, lacking other sources of revenue, it collapses. Since the biggest terms in this geometric sequence are at the end, most people will be in the lower levels of the pyramid; accordingly, the bottom layer of the pyramid contains the most people. The people working for pyramid schemes try to promote the actual company instead of the product they are selling. Eventually, all of the people at the lower levels of the pyramid do not make any money; only the people at the top turn a profit.[4]
People in the upper layers of the pyramid typically profit, while those in the lower layers typically lose money. Since most of the members in the scheme are at the bottom, most participants will not make any money. In particular, when the scheme collapses, most members will be in the bottom layers and thus will not have any opportunity to profit from the scheme; still, they will have already paid to join. Therefore, a pyramid scheme is characterized by a few people (including the creators of the scheme) making large amounts of money, while subsequent members lose money. For this reason, they are considered scams.[5]
The "eight ball" model
[edit]
Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult, so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases. The scheme requires a person to recruit two others, who must each recruit two others, and so on.
Prior instances of this scheme have been called the "Airplane Game" and the four tiers labelled as "captain", "co-pilot", "crew", and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labeled the tiers as "dessert", "main course", "side salad", and "appetizer". A person on the "dessert" course is the one at the top of the tree. Another variant, "Treasure Traders", variously used gemology terms such as "polishers", "stone cutters", etc. One version called the Abundance Fractal uses the four elements as the names of tiers: "Fire", "Air", "Earth", and "Water". A more recent variation known as the Living Workshop takes the names of plants, calling the tiers "seed", "sapling", "blossom", and "lotus".
Such schemes may try to downplay their pyramid nature by referring to themselves as "gifting circles" with money being "gifted". Others focus on sharing circles or educational themes around "abundance" to divert attention away from the unsustainable structure. Popular schemes such as "Women Empowering Women"[6] do exactly this.
Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme—with the Airplane Game as the example, the person at the top of this tree is the "captain", the two below are "co-pilots", the four below are "crew", and the bottom eight joiners are the "passengers".
The eight passengers must each pay (or "gift") a sum (e.g., $5,000) to join the scheme. This sum (e.g., $40,000) goes to the captain, who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they advance through the crew and co-pilot tiers and exit the scheme as a captain. Therefore, the participants in the bottom three tiers of the pyramid lose their money if the scheme collapses.
If a person is using this model as a scam, the confidence trickster would take the majority of the money. They would do this by filling in the first three tiers (with one, two, and four people) with phony names, ensuring they get the first seven payouts, at eight times the buy-in sum, without paying anything themselves. So if the buy-in were $5,000, they would receive $40,000, paid for by the first eight investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible to allow them to skim even more from it before it collapses.
Although the "captain" is the person at the top of the tree, having received the payment from the eight paying passengers, once they leave the scheme they are able to re-enter the pyramid as a "passenger" and hopefully recruit enough to reach captain again, thereby earning a second payout.
Blessing Loom
[edit]
Similar to the eight ball model, the Blessing Loom tricks potential investors by claiming to turn $100 into $800. This scheme has a circular structure, as increases in new recruits pushes individuals closer to the center of the circle, hence the "Loom" in the name. Each participant needs to recruit two people without providing them with any service or product. The scam often resurfaces online across the globe, under different aliases such as "loom circle" or "fractal mandala".[7] The Blessing Loom scheme has been ruled as illegal in multiple US cities.[8]
Franchise fraud
[edit]Franchise fraud is defined by the United States Federal Bureau of Investigation as a pyramid scheme. The FBI website states:
Pyramid schemes—also referred to as franchise fraud or chain referral schemes—are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses.[9]
Matrix schemes
[edit]Matrix schemes use the same fraudulent, unsustainable system as a pyramid; here, the participants pay to join a waiting list for a desirable product, which only a fraction of them can ever receive. Since matrix schemes follow the same laws of geometric progression as pyramids, they are subsequently as doomed to collapse.
Such schemes operate as a queue, where the person at head of the queue receives an item such as a television, games console, digital camcorder, etc. when a certain number of new people join the end of the queue. For example, ten joiners may be required for the person at the front to receive their item and leave the queue. Each joiner is required to buy an expensive but potentially worthless item, such as an e-book, for their position in the queue. The scheme organizer profits because the income from joiners far exceeds the cost of sending out the item to the person at the front. Organizers can further profit by starting a scheme with a queue with shill names that must be cleared out before genuine people get to the front. The scheme collapses when no more people are willing to join the queue.
Schemes may not reveal, or may attempt to exaggerate, a prospective joiner's queue position, a condition that essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis.
Relation to Ponzi schemes
[edit]While often confused with each other, pyramid schemes and Ponzi schemes are different.[10] Pyramid schemes are based on network marketing, where each person in the pyramid is tasked with bringing in their own subordinates and in turn profiting from their sales or recruitments. This fails because it essentially requires an infinite number of people to join the company. In a Ponzi scheme, however, participants are promised returns on "investments", supposedly into stocks or goods, but which are actually paid for by new investors, while a central leading figure takes a portion as profit.
Connection to multi-level marketing
[edit]Some multi-level marketing (MLM) companies operate as pyramid schemes and consumers often confuse legitimate multi-level marketing with pyramid schemes.[3][11][12][13]
According to the U.S. Federal Trade Commission (FTC) legitimate MLM businesses are distinguished from pyramid schemes by participants making money primarily from product sales, rather than recruitment:[14]
Not all multi-level marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it's probably not. It could be a pyramid scheme.[15]
In contrast, pyramid schemes "may purport to sell a product", but often "simply use the product to hide their pyramid structure".[12] While some people call MLMs in general "pyramid selling",[16][17][18][19] others use the term to denote an illegal pyramid scheme masquerading as a MLM.[20]
The U.S. Federal Trade Commission warns against becoming involved "in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products."[21]
Some commentators contend that MLMs in general are nothing more than legalized pyramid schemes.[22][23][24] There are different laws in every state, and they take different actions toward pyramid schemes, but multi-level-marketing is legal.[25] Multi-level marketing lobbying groups have pressured US government regulators to maintain the legal status of such schemes.[26]
Legality
[edit]Pyramid schemes are illegal in many countries or regions including Albania,[27][28] Austria, Belgium,[29] Bahrain, Bangladesh,[30] Brazil, Canada,[31] China,[32] Colombia,[33] Denmark, the Dominican Republic,[34] Estonia,[35] Finland,[36] France,[37] Germany, Hong Kong,[38] Hungary,[39] Iceland, India,[40] Indonesia,[41] Iran,[42] Ireland,[43] Italy,[44] Japan,[45] Malaysia,[46] the Maldives, Mexico, Nepal, the Netherlands,[47] New Zealand,[48] Norway,[49] Oman, Peru, the Philippines,[50] Poland,[51] Portugal, Romania,[52] Russia, Serbia,[53] South Africa,[54] Singapore,[55] Spain, Ethiopia, Sri Lanka,[56] Sweden,[57] Switzerland, Taiwan, Thailand,[58] Trinidad and Tobago,[59] Turkey,[60] Ukraine,[61] the United Kingdom,[62] and the United States.[12]
Notable cases
[edit]The 1997 Albanian civil unrest was partially motivated by the collapse of Ponzi schemes; however, they were widely referred to as pyramid schemes due to their prevalence in Albanian society.[63][clarification needed]
In 2003, the United States Federal Trade Commission (FTC) disclosed what it called an Internet-based "pyramid scam." Its complaint states that customers would pay a registration fee to join a program that called itself an "internet mall" and purchase a package of goods and services such as internet mail, and that the company offered "significant commissions" to consumers who purchased and resold the package. The FTC alleged that the company's program was instead and in reality a pyramid scheme that did not disclose that most consumers' money would be kept, and that it gave affiliates material that allowed them to scam others.[64]
WinCapita was a scheme run by Finnish criminals that involved about €100 million. The scheme started in 2005.[65]
In early 2006, Ireland was hit by a wave of schemes with major activity in Cork and Galway. Participants were asked to contribute €20,000 each to a "Liberty" scheme which followed the classic eight-ball model. Payments were made in Munich, Germany, to skirt Irish tax laws concerning gifts. Spin-off schemes called "Speedball" and "People in Profit" prompted a number of violent incidents and calls were made by politicians to tighten existing legislation.[66] Ireland has launched a website to better educate consumers to pyramid schemes and other scams.[67]
On 12 November 2008, riots broke out in the municipalities of Pasto, Tumaco, Popayán and Santander de Quilichao, Colombia, after the collapse of several pyramid schemes. Thousands of victims had invested their money in pyramids that promised them extraordinary interest rates. The lack of regulatory laws allowed those pyramids to grow excessively for several years. Finally, after the riots, the Colombian government was forced to declare the country in a state of economic emergency to seize and stop those schemes. Several of the pyramid's managers were arrested, and prosecuted for the crime of "illegal massive money reception."[68]
The Kyiv Post reported on 26 November 2008 that American citizen Robert Fletcher (Robert T. Fletcher III; aka "Rob") was arrested by the SBU (Ukraine State Police) after being accused by Ukrainian investors of running a Ponzi scheme and associated pyramid scam netting US$20 million. (The Kyiv Post also reported that some estimates were as high as US$150 million.)[69]
In the United Kingdom in 2008 and 2009, a £21 million pyramid scheme named 'Give and Take' involved at least 10,000 victims in the south-west of England and South Wales. Leaders of the scheme were prosecuted and served time in jail before being ordered to pay £500,000 in compensation and costs in 2015. The cost of bringing the prosecution was in excess of £1.4 million.[70]
A number of authorities around the world declared TVI Express to be a pyramid scheme in 2010 and 2011, including the Australian Competition & Consumer Commission, the Bank of Namibia, and the Central Bank of Lesotho. TVI Express, operated by Tarun Trikha from India, has apparently recruited hundreds of thousands of "investors", very few of whom, it is reported, have recouped any of their investment.[71][72][73][74][75]
BurnLounge, Inc. was a multi-level marketing online music store founded in 2004 and based in New York City. By 2006 the company reported 30,000 members using the site to sell music through its network. In 2007, the Federal Trade Commission sued the company for being an illegal pyramid scheme. The company lost the suit in 2012, and lost appeal in June 2014. In June 2015, the FTC began returning $1.9 million to people who had lost money in the scheme.[76]
In August 2015, the United States FTC filed a lawsuit against Vemma Nutrition Company, an Arizona-based dietary supplement Multi-Level Marketing firm, accused of operating an illegal pyramid scheme. In December 2016, Vemma agreed to a $238 million settlement with the FTC, which banned the company from "pyramid scheme practices" including recruitment-focused business ventures, deceptive income claims, and unsubstantiated health claims.[77][78]
In March 2017, Ufun Store registered as an online business for its members as a direct-sales company was declared operating a pyramid scheme in Thailand. The Criminal Court handed down prison terms totaling 12,265 to 12,267 years to 22 people convicted over the scheme, which conned about 120,000 people out of more than 20 billion baht.[79]
The Airplane Game scheme resurfaced in 2020 as a savings club by the name of the Blessing Loom, Blessing Circle, Sending Flower, Gifting Flower, and so on. It is also misrepresented as a Sou-Sou, a legitimate savings club model where the number of people paying into the pot is fixed and each person gets a payout on regular basis. This is distinct from the pyramid scheme variation making use of the hierarchical flower model,[80] where new members are continually recruited into the group by people at the edges of the flower. This re-imagining of the old Airplane/8-ball model is making a resurgence on social media platforms such as Instagram and Zoom.[81][82]
See also
[edit]References
[edit]- ^ pyramid scheme at the Encyclopædia Britannica
- ^ Website admin. (2024). "Multi-Level Marketing vs Pyramid Schemes". Consumer Protection. consumer.sd.gov. Office of the Attorney General of South Dakota. Retrieved February 18, 2024.
The difference between a pyramid scheme and a lawful MLM program is that there is no real product that is sold in a pyramid scheme. Participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.
- ^ a b Smith, Rodney K. (1984). Multilevel Marketing. Baker Publishing Group. p. 45. ISBN 0-8010-8243-9.
- ^ "Pyramid Schemes". Federal Bureau of Investigation. Retrieved 2019-04-18.
- ^ Commission, Australian Competition and Consumer (May 14, 2015). "Pyramid schemes". Australian Competition and Consumer Commission.
- ^ Tracy McVeigh (2001-08-05). "Pyramid selling scam that preys on women to be banned". Guardian. Retrieved 2013-04-02.
- ^ Okwe Mathias, Abuja; Merlyn Mathews, Lagos (21 May 2019). "SEC declares 'Loom Money' illegal outfit". Guardian Nigeria. Retrieved 3 May 2022.
- ^ ABC News (2020-04-20). "Police warn of 'blessing loom' scam". YouTube. Archived from the original on 2021-11-04.
- ^ "FBI — Common Fraud Schemes". Fbi.gov. Retrieved 2013-04-02.
- ^ Zuckoff, Mitchell (10 January 2006). Ponzi's scheme – the true story of a financial legend. New York: Random House Trade Paperbacks. ISBN 0-8129-6836-0.
- ^ Keep, William W; Vander Nat, Peter J. (2014). "Multilevel marketing and pyramid schemes in the United States: An historical analysis" (PDF). Journal of Historical Research in Marketing. 6 (2): 188–210. doi:10.1108/JHRM-01-2014-0002. Archived from the original (PDF) on 2016-04-12. Retrieved 2016-03-26.
- ^ a b c Valentine, Debra (May 13, 1998). "Pyramid Schemes". Federal Trade Commission. Archived from the original on 2022-05-26. Retrieved 2016-03-25.
- ^ Edwards, Paul (1997). Franchising & licensing: two powerful ways to grow your business in any economy. Tarcher. p. 356. ISBN 0-87477-898-0.
- ^ "Pyramid Schemes". 18 July 2013.
- ^ "Multilevel Marketing". 14 July 2016.
- ^ Clegg, Brian (2000). The invisible customer: strategies for successive customer service down the wire. Kogan Page. p. 112. ISBN 0-7494-3144-X.
- ^ Higgs, Philip; Smith, Jane (2007). Rethinking Our World. Juta Academic. p. 30. ISBN 978-0-7021-7255-7.
- ^ Kitching, Trevor (2001). Purchasing scams and how to avoid them. Gower Publishing Company. p. 4. ISBN 0-566-08281-0.
- ^ Mendelsohn, Martin (2004). The guide to franchising. Cengage Learning Business Press. p. 36. ISBN 1-84480-162-4.
- ^ Blythe, Jim (2004). Sales & Key Account Management. Cengage Learning Business Press. p. 278. ISBN 1-84480-023-7.
- ^ "Multilevel Marketing". Federal Trade Commission. 4 January 2018. Retrieved 2018-06-20.
There are multi-level marketing plans – and then there are pyramid schemes. Before signing on the dotted line, study the company's track record, ask lots of questions, and seek out independent opinions about the business.
- ^ Carroll, Robert Todd (2003). The Skeptic's Dictionary: A Collection of Strange Beliefs, Amusing Deceptions, and Dangerous Delusions. Wiley. p. 235. ISBN 0-471-27242-6.
- ^ Coenen, Tracy (2009). Expert Fraud Investigation: A Step-by-Step Guide. Wiley. p. 168. ISBN 978-0-470-38796-2.
- ^ Salinger, Lawrence M., ed. (2005). Encyclopedia of White-Collar & Corporate Crime. Vol. 2. Sage Publishing. p. 880. ISBN 0-7619-3004-3.
- ^ "Pyramid Schemes". Findlaw. Retrieved 2019-03-29.
- ^ "How lobbying dollars prop up pyramid schemes". TheVerge. 8 April 2014. Retrieved 2019-08-20.
- ^ Jarvis, Christopher (March 2000). "The Rise and Fall of Albania's Pyramid Schemes". Archived from the original on 6 April 2012.
{{cite journal}}: Cite journal requires|journal=(help) - ^ "Competition and Consumer Act 2010 – Schedule 2, Division 3 – Pyramid schemes". Austlii.edu.au. Retrieved 2013-04-02.
- ^ "Piramideverkoop - Geschillen en klachten - Home". Archived from the original on 2014-10-15. Retrieved 2014-10-09.
- ^ "Govt bans pyramid marketing". The Daily Star. 2013-09-06. Retrieved 2020-06-14.
- ^ "Pyramid scams". antifraudcentre-centreantifraude.ca. March 11, 2015. Archived from the original on November 13, 2018. Retrieved November 2, 2018.
- ^ "Regulation on Prohibition of Pyramid Selling". fdi.gov.cn. Archived from the original on 2019-01-23. Retrieved 2019-01-23.
- ^ "Colombia scam: 'I lost my money'". BBC News. November 18, 2008. Retrieved 2010-04-12.
- ^ "Proyecto De Ley Que Prohíbe La Venta Bajo El Esquema Piramidal" (PDF) (in Spanish). Archived from the original (PDF) on 2016-04-29. Retrieved 2011-02-23.
- ^ "Tarbijakaitseseadus" [The Consumer Protection Law of Estonia] (in Estonian). §123(8) #14. Retrieved 2010-10-11.
- ^ Rahankeräyslaki 255/2006 – "Rahankeräyslaki 255/2006 – Ajantasainen lainsäädäntö – FINLEX ®".
- ^ "Door to Door Selling – Pyramid Selling – Multilevel Marketing". November 1999. p. 130. CiteSeerX 10.1.1.129.8742.
- ^ Pyramid Schemes Prohibition Ordinance (Cap. 617) § 5
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- ^ 無限連鎖講の防止に関する法律 Archived 2009-06-27 at the Wayback Machine (in Japanese)
- ^ The Commissioner of Law revision, Malaysia Under the Authority of the Revision of Laws Act 1968 (1 March 2013). "Direct Sales and Anti-Pyramid Scheme Act 1993 (Act 500)" (PDF). Archived (PDF) from the original on 2022-07-15.
{{cite web}}: CS1 maint: numeric names: authors list (link) - ^ "Sentence by the High Council of the Netherlands regarding a pyramid scheme". Zoeken.rechtspraak.nl. Archived from the original on 2013-06-19. Retrieved 2013-04-02.
- ^ Pyramid Schemes Commerce Commission of New Zealand
- ^ "Lovdata.no". Lovdata.no. Retrieved 2013-04-02.
- ^ NYtimes.com, "Investors in Philippine Pyramid Scheme Lose over $2 Billion"
- ^ "First penalty imposed for soliciting into so-called pyramid-type schemes". Office of Competition and Consumer Protection. 22 January 2021.
- ^ Explozia piramidelor Archived 2016-05-06 at the Wayback Machine Ziarul Ziua, 12.07.2006
- ^ "Zakon o trgovini | Republika SRBIJA". Paragraf. Retrieved 2020-12-20.
- ^ Whitecollarcrime.co.za Archived 2008-12-01 at the Wayback Machine, Pyramid Schemes
- ^ Multi-Level Marketing and Pyramid Selling (Prohibition) Act (Cap. 190, 2000 Rev. Ed.), section 3
- ^ Pyramid Schemes Illegal Under Section 83c of the Banking Act of Sri Lanka Department of Government Printing, Sri Lanka
- ^ lagen.nu – Tillkännagivande (2008:487) med anledning av marknadsföringslagen (2008:486)
- ^ TDSA.gov Archived 2009-02-20 at the Wayback Machine, ข้อมูลเพิ่มเติมในระบบธุรกิจขายตรงและธุรกิจพีระมิด by Thai Direct Selling Association (in Thai)
- ^ "Government outlaws ponzi, pyramid schemes". tt.loopnews.com. 2022-11-16. Retrieved 2023-10-03.
- ^ "Saadet zinciri operasyonu: 60 gözaltı". Cnnturk.com. 2010-05-14. Retrieved 2013-04-02.
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- ^ "Finance and Development". Finance and Development | F&D. Retrieved 2018-07-04.
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- ^ "SS: Some WinCapita Ponzi scheme victims to soon receive compensation". Yle Uutiset. 22 September 2016. Retrieved 2018-07-04.
- ^ Gardaí hold firearm after pyramid scheme incident Archived 2008-03-23 at the Wayback Machine Irish Examiner
- ^ "National Consumer Agency Ireland". Consumerconnect.ie. Retrieved 2013-04-02.
- ^ Colombians riot over pyramid scam. Colombia: BBC News. Nov 13, 2008.
- ^ Rachkevych, Mark (2008-11-26). "Caught! American arrested in Kyiv on suspicion of fraud – Nov. 26, 2008". Kyiv Post. Retrieved 2018-07-04.
- ^ "Prosecuting members of a £21m pyramid scheme cost taxpayers £1.4m". bbc.co.uk. 14 September 2015.
- ^ ACCC obtains restraining orders against operators of alleged pyramid selling scheme TVI Express Archived 2011-06-02 at the Wayback Machine Australian Competition and Consumer Commission
- ^ BoN warns public about TVI Express Archived 2011-10-04 at the Wayback Machine Bank of Namibia
- ^ BoL warns public about TVI Express Archived 2011-10-03 at the Wayback Machine Bank of Lesotho
- ^ South African Sunday Times on TVI Express Sunday Times (South Africa)
- ^ Consumer Watchdog Botswana on TVI Express Consumer Watchdog Botswana
- ^ Hull, Tim (2 June 2014). "9th Circuit Affirms BurnLounge Judgment". Courthouse News Service. Retrieved 2014-06-19.
- ^ "Vemma Agrees to Ban on Pyramid Scheme Practices to Settle FTC Charges". FTC.gov. 15 December 2016. Retrieved 2016-12-22.
- ^ "Vemma reaches $238 million settlement with FTC". TruthInAdvertising.org. Retrieved 2016-12-22.
- ^ "Ufun fraudsters sentenced to thousands of years". Bangkok Post. 22 March 2017. Retrieved 2020-08-08.
- ^ "BE AWARE: 'Blessing Loom' scam is resurfacing on social media". cbs19.tv. 21 April 2020. Retrieved 2020-08-08.
- ^ "Blessing Loom Ponzi Scam: Beware". OnlineThreatAlerts.com. Retrieved 2020-07-07.
- ^ "'Blessing looms' pyramid scheme sweeps across Houston". Click2Houston.com. 8 December 2016. Retrieved 2020-07-07.
- The Fraudsters: How Con Artists Steal Your Money, Chapter 9, "Pyramids of Sand" (ISBN 978-1-903582-82-4) by Eamon Dillon, published September 2008 by Merlin Publishing, Ireland.
External links
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Media related to Pyramid and Ponzi schemes at Wikimedia Commons
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