A pyramid scheme is an investment fraud in which new participants’ fees are typically used to pay money to existing participants for recruiting new members. Pyramid scheme organizers may pitch the scheme as a business opportunity such as a multi-level marketing (MLM) program. Fraudsters frequently use social media, Internet advertising, company websites, group presentations, conference calls, and YouTube videos to promote a pyramid scheme.
All pyramid schemes eventually collapse, and most investors lose their money. Hallmarks of a pyramid scheme include:
- No genuine product or service is sold;
- Promise of high returns in a short period of time;
- Easy money or passive income;
- No demonstrated revenue from retail sales;
- Buy-in required;
- Complex commission structure; and
- Emphasis on recruiting.