Are Pyramids Illegal?

The originator of a pyramid scheme is normally the only one who makes big profits.

Pyramids such as the tombs built in Egypt and pyramid-shaped objects are legal. Pyramid schemes are illegal in many countries including the U. S. The shape resembles a pyramid as the people on the bottom support those above them, all the way to the top.

Operation

The core of a pyramid scheme is geometric progression. The number of people to recruit varies, but the amount of people needed soon becomes impossible. An entrance fee goes to the person starting the pyramid. The contributors then recruit more people to get their money back. If the originator recruits five people, each of those would recruit five people. Eventually, the number of people required makes the process unsustainable.

Multilevel Marketing

Multilevel Marketing (MLM) companies rely on recruiting people to sell their product and return some of the profit to the person who recruited them. If the marketing plan requires distributors to recruit more distributors, it's probably a pyramid.

Clubs

Promotions for pyramid schemes use investment clubs, friendship clubs, gift clubs or clubs by other similar names. The organizers assure new investors that they are legal. These clubs require a membership payment to the organizers, and new members will get more than their investment back when the new members persuade others to join the club. If they don't sell a product, and if they require enlisting new members, they probably are a pyramid club.

References

• Federal Trade Commission: Pyramid Schemes
• The Skeptics Dictionary: Pyramid Scheme
• MLM Watch: How to Identify a Product--Based Pyramid Scheme
• Federal Trade Comission: The Gifting Club "Gotcha"