A key characteristic of pyramid selling schemes is the dependence on recruiting new participants to the scheme for earning money and advancing within the structure. The cycle continues as these recruits, in turn, bring in more participants, creating a cascading effect. Pyramid schemes are deemed unfair trade practices due to their inherent unfairness to the majority of participants. The benefits for those at the top stem from those at lower levels, and, eventually, recruiting the necessary number of people becomes impractical, leading to diminished financial rewards for participants.
We have compiled a list of several reliable online scam fighting agencies to help you keep up to date on current and past pyramid scheme alert scams and its types.
In this example the scheme depends on each participant recruiting 6 new members into the scheme. The figure below shows how many people will need to have joined the scheme at each level, in order for those above to be paid.
The global population stands at around 7 billion people. Consequently, after 13 levels, there aren't sufficient individuals on Earth to sustain the scheme. Some schemes incorporate the use of agents, supplied by the operators, who recruit others on behalf of participants, eliminating the need for individuals to recruit new participants personally.
A pyramid scheme is a marketing strategy employed by marketers to endorse a specific brand, product, or service. In this scheme, consumers or investors are enticed with the promise of substantial profits, contingent on the number of users they recruit to promote the brand. Pyramid scheme owners often recruit their initial group through seminars, personal phone calls, or mailings, employing an attractive promotion strategy to attract maximum users. The recruiter is then tasked with bringing in additional investors or recruiters, and the initial investor receives a commission based on the number of new participants joining the pyramid scheme.
Many companies that struggle to sell their products resort to entering pyramid schemes. In such schemes, the products are frequently used only by the recruits within the scheme and not by the general public. Recruiters, when selling or promoting the product, often portray a false image of high demand. Scam companies often engage in pyramid schemes to attract investments from users. The product advertising is designed to be highly attractive, and commission rates are elevated during promotions. Unfortunately, many schemes dissolve, leaving numerous investors without having received their promised commission rates.
In 2007, a company called Wealth Pools was exposed for scamming numerous individuals through a pyramid scheme, leading to the freezing of its assets by the SEC. The company operated by selling English and Spanish DVDs through a global network. Users were encouraged to buy DVDs and resell them to make a profit. However, it was discovered that the actual profits came from adding new recruits to the pyramid scheme, not from reselling the DVDs. Ultimately, the company used the money from users as its profit. This scheme affected approximately 70,000 people across 64 different countries, resulting in a collective loss of $132 million dollars for the consumers.
Big Co-op Inc, an internet shopping website based in California, was found to be operating a pyramid scam scheme. Participants in this scheme were required to purchase a license, promising them commissions when they sold the company's products to external customers. Additionally, employees were encouraged to sell licenses to others as part of joining the company. Profits were not generated from the products sold by the company; instead, they were derived from the licenses purchased by new users. This fraudulent scheme resulted in a financial loss of approximately 8.2 million dollars for about 1000 residents of California. The owners of Big Co-op Inc were subsequently sentenced to 20 years of imprisonment.
Harvey Joseph Dockstader Jr. from Texas orchestrated a pyramid scheme named Elite Activity, enticing participants to engage in a "cycle of abundance." In this fraudulent setup, individuals were required to make a "gift" in the form of a monetary contribution serving as an initial recruitment fee. They were promised significant profits upon recruiting new participants into the scheme.
This scheme could also be categorized as a religious scam, as Dockstader convinced many participants to join by asserting that his program was a divine work and inspired by God. He frequently invoked the name of God, assuring users that they would experience substantial profits as a blessing from the divine.
This company was founded in early 90s, dealing in nutritional supplements. The company is a public company with net revenue of $790 million, which was accused of running pyramid scheme.
Another public company accused of having adopted pyramid scheme is Nu skin enterprises. The company started its operation in the year 1984, selling supplements for skin care. The net revenue of this company was close to 2.57 billion dollars.
Mary Kay, a private company incorporated in 1963 dealing in cosmetics is another company that was involved in pyramid scheme. The net revenue was observed to be 4 billion dollars.
Herbal life another public company founded in 1980, dealing in supplements and skin care holder of net revenue of 5 billion dollars, involved in pyramid scheme.