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{{Short description|Type of unsustainable business model}}
{{Redirect|Pyramid Scheme|the Teen Titans Go! episode|Pyramid Scheme (Teen Titans Go! episode)}}
{{Lead rewrite|date=July 2024}}
[[File:Pyramid scheme diagram.svg|thumb|upright=1.3|The unsustainable exponential progression of a classic pyramid scheme in which every member
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
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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=== The "eight ball" model ===
[[File:Airplane game.svg|thumb|The "eight-ball" model contains a total of fifteen members. Note that
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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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
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>
== 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
[[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>
== Notable cases ==
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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>
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
| title = Colombians riot over pyramid scam
| publisher = [[BBC News]]
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| 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 million. (The ''Kyiv Post'' also
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>
[[BurnLounge]], Inc. was a multi-level marketing [[
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>
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 billion baht.<ref>{{Cite news
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
==See also==
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*[[Holiday Magic]]
*[[Make Money Fast]]
*[[Nouveau Riche (college)]]
*[[Qnet]]
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