The pyramid scheme is a fraudulent and illegal system of making money which requires a stream of recruits for success. Recruits give money to recruiters and enlist new recruits to give them money.
A pyramid scheme is called a pyramid scheme because each person recruited in the business is required to recruit a number of others; based on 10 the scheme would look like this:
In a pyramid scheme, a recruit is asked to give a sum of money to a recruiter. The new recruit then enlists, a number of other recruits, and gives them each a sum of money. In the simplest example, the recruiter keeps some or all of the money he gets from his recruits. For example, each recruit gives up $100 in exchange for $900 ($100 from each of his 10 recruits minus the $100 he gave his own recruiter
The result of this scheme is that few people walk away with a lot of money, while most recruits lose whatever money they put into the scheme
The people behind a pyramid scheme go to great lengths to make the program look like a legitimate business. They may be disguised as games, chain letters, buying clubs, motivational companies, mail order operations, or investment organizations.
However, despite their claims to have legitimate products or services to sell, these people simply use money coming in from new recruits to pay off early stage investors. Promoters of pyramid schemes stress the selling of additional franchises for a quicker return on your investment. Investors, therefore, expend their energies selling franchises rather than the product. At some point, the supply of potential investors is exhausted, leading to the inevitable collapse of the pyramid.
At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money.
These schemes are fraudulent and illegal because they employ deception as a means to getting money.
Pyramid schemes are about greed, a person desiring to make a lot of money from a small investment in a short amount of time.
Remember the old adage, “If it sounds too good to be true, it probably is”
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