What is a Pyramid Scheme?
A pyramid scheme is a fraudulent investment scam that recruits members via a promise of high returns for enrolling others into the scheme rather than from any real profit earned. Pyramid schemes rely on recruiting new participants, who are often required to pay an upfront fee. The primary emphasis is on expanding the base of the pyramid through recruitment rather than selling actual products or services. Participants are organized in a hierarchical structure resembling a pyramid. The initial recruiter sits at the top, and as more individuals are recruited, they form subsequent levels. Participants on the lower level aim to recruit more people to advance and profit, but only those at the top typically receive significant returns.
Geeky Takeaways:
- Pyramid schemes deceive individuals by promising high returns based on recruitment rather than legitimate business activities.
- The structure relies on constant recruitment, forming a pyramid where profits primarily flow to those at the top.
- Pyramid schemes are unsustainable by nature and inevitably collapse, causing financial losses for participants.
Table of Content
- How does Pyramid Scheme Work?
- Types of Pyramid Schemes
- Example of a Pyramid Scheme
- How do Pyramid Schemes Collapse?
- Why do People Invest in Pyramid Schemes?
- How can you Avoid Being Defrauded?
- Difference between Pyramid Schemes and Multi-level Marketing (MLMs)
- Difference between Pyramid Schemes and Ponzi Schemes
- Conclusion
- Frequently Asked Questions (FAQs)
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