Pyramid scheme: Difference between revisions

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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 init anis 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.

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== 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, 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 WE'LL GO DOWN A REASON THEN LOOK WRONG.HAVE REAL BIG

== Connection to multi-level marketing ==

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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>

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 differentLocal laws in everymay statevary, 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 ==

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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 [[onlinedigital 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>