View source for Pyramid scheme

{{Short description|Type of unsustainable business model}}
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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 recruits 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.]]
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]].

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" />

== Concept and basic models ==
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.<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>

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>

=== The "eight ball" model ===
[[File:Airplane game.svg|thumb|The "eight-ball" model contains a total of fifteen members. Note that it is a representation of the [[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.]]

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|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"<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.

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".

[[File:Small Pyramid Schemes Still Lose Money.svg|thumb|At ten levels deep, the "airplane game" has an 87% loss rate.]]

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 [[investor]]s. 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 ===
[[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.]]

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>

===Franchise fraud===
[[Franchise fraud]] is defined by the United States [[Federal Bureau of Investigation]] as a pyramid scheme. The FBI website states:

<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>

=== Matrix schemes ===
{{Main|Matrix scheme}}
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==
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, 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 ==
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>

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>

<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>

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>

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>

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> Local laws may vary, and they take different actions toward pyramid schemes, but multi-level-marketing is often 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>

== Legality ==
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> [[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=https://news.bbc.co.uk/2/hi/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>Rahankeräyslaki 255/2006 – {{Cite web|url=https://www.finlex.fi/fi/lainsaadanto/2006/255|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]],
[[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 &#124; 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"/>

== Notable cases ==
The [[1997 Albanian civil unrest]] was partially motivated by the collapse of [[Ponzi scheme]]s; 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>{{clarify|date=June 2024}}

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>

[[WinCapita]] was a scheme run by Finnish criminals that involved about €100&nbsp;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>

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>

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
 | title = Colombians riot over pyramid scam
  | publisher = [[BBC News]]
  | location = Colombia
  | url =https://news.bbc.co.uk/2/hi/americas/7726069.stm
  | date = Nov 13, 2008}}</ref>

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&nbsp;million. (The ''Kyiv Post'' also reported that some estimates were as high as US$150&nbsp;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>

In the United Kingdom in 2008 and 2009, a £21&nbsp;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&nbsp;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>

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>

[[BurnLounge]], Inc. was a multi-level marketing [[digital 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&nbsp;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>

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&nbsp;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>

In March 2017, Ufun Store, registered as an online business for its members as a direct-sales company, was declared to be 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&nbsp;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>

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 regularly. 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>

==See also==
<!--♦♦♦ Please keep the list in alphabetical order ♦♦♦-->
{{cols|colwidth=21em}}
*[[AI boom]]
**[[AI bubble]]
*[[Aman Futures Group]]
*[[BurnLounge]]
*[[Social Security debate in the United States#Pyramid or Ponzi scheme claims|Claims of Social Security in the US as a pyramid scheme]]
*[[Cryptocurrency]]
**[[Cryptocurrency bubble]]
*[[Elite Activity]]
*[[Gift]]
*[[Holiday Magic]]
*[[Make Money Fast]]
*[[Non-fungible token]]
*[[Nouveau Riche (college)]]
*[[Qnet]]
*[[Ponzi scheme]]
*[[Success University]]
*[[The Cobra Group]]
{{colend}}

== References ==
{{Reflist}}
* ''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==
*{{Commons category-inline|Pyramid and Ponzi schemes}}

{{Scams and confidence tricks}}
{{Authority control}}

{{DEFAULTSORT:Pyramid Scheme}}
[[Category:Pyramid and Ponzi schemes| ]]
[[Category:Business models]]
[[Category:Confidence tricks]]
[[Category:Types of marketing]]