Pyramid scheme
Encyclopedia
A pyramid scheme is a non-sustainable business model
that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products
or services to the public. Pyramid schemes are a form of fraud
.
Pyramid schemes are illegal in many countries including Albania
, Australia
, Brazil
, Bulgaria
, Canada
, China
, Colombia
, Denmark
, the Dominican Republic
, Estonia
, France
, Germany
, Hungary
, Iceland
, Iran
, Italy
, Japan
, Malaysia, Mexico
, Nepal
, The Netherlands
, New Zealand
, Norway
, the Philippines
, Poland
, Portugal
, Romania
, South Africa
, Spain
, Sri Lanka
, Sweden
, Switzerland
, Taiwan
, Thailand
, Turkey
, the United Kingdom
, and the United States
.
These types of schemes have existed for at least a century, some with variations to hide their true nature, and many people believe that multilevel marketing is also a pyramid scheme.
Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the "business" expands.
Such "businesses" seldom involve sales of real products or services to which a monetary value might be easily attached. However, sometimes the "payment" itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information.
The flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the "pharaoh") and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Individuals at the bottom of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.
Prior instances of this scheme have been called the "Airplane Game
" and the four tiers labelled as "captain," "co-pilot," "crew," and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labeled the tiers as "dessert," "main course," "side salad," and "appetizer." A person on the "dessert" course is the one at the top of the tree. Another variant, "Treasure Traders," variously used gemology
terms such as "polishers," "stone cutters," etc. or gems like "rubies," "sapphires," "diamonds," etc.
Such schemes may try to downplay their pyramid nature by referring to themselves as "gifting circles" with money being "gifted." Popular schemes such as the "Women Empowering Women" do exactly this.
Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme - with the Airplane Game as the example, the person at the top of this tree is the "captain," the two below are "co-pilots," the four below are "crew," and the bottom eight joiners are the "passengers."
The eight passengers must each pay (or "gift") a sum (e.g. $1000) to join the scheme. This sum (e.g. $8000) goes to the captain who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they advance through the crew and co-pilot tiers and exit the scheme as a captain. Therefore, the participants in the bottom 3 tiers of the pyramid lose their money if the scheme collapses.
If a person is using this model as a scam, the confidence trickster would make the lion's share of the money. They would do this by filling in the first 3 tiers (with 1, 2, and 4 people) with phony names, ensuring they get the first 7 payouts, at 8 times the buy-in sum, without paying a single penny themselves. So if the buy-in were $1000, they would receive $8,000, paid for by the first 8 investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible to allow them to skim even more from it before it collapses.
Although the 'Captain' is the person at the top of the tree, having received the payment from the 8 paying passengers, once he or she leaves the scheme is able to re-enter the pyramid as a 'Passenger' and hopefully recruit enough to reach captain again, thereby earning a second payout.
names that must be cleared out before genuine people get to the front. The scheme collapses when no more people are willing to join the queue. Schemes may not reveal, or may attempt to exaggerate, a prospective joiner's queue position which essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis.
(abbreviated MLM) business has become associated with pyramid schemes as "Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure." and the fact while some people call MLMs in general "pyramid selling" others use the term to denote an illegal pyramid scheme masquerading as an MLM.
The United States Federal Trade Commission
(FTC) warns "Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get 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." and states that research is your best tool and gives eight steps to follow:
Some believe MLMs in general are nothing more than legalized pyramid schemes. Even in reputable MLM companies, such as AMWAY, the top earners make up to 95% of their income from tapes and other motivational materials sold to the lower levels.
Federal Bureau of Investigation
as a pyramid scheme. The FBI website states:
One of Pearlasia Gamboa
’s (president of the micronation
of Melchizedek
) franchise fraud schemes was described by the Italian newspaper La Repubblica
as “one of the most diabolical international scams ever devised in recent years.”
(FTC) disclosed what it called an internet-based "pyramid scam." Its complaint states that customers would pay a registration fee to join a program that called itself an "internet mall" and purchase a package of goods and services such as internet mail, and that the company offered "significant commissions" to consumers who purchased and resold the package. The FTC alleged that the company's program was instead and in reality a pyramid scheme that did not disclose that most consumers' money would be kept, and that it gave affiliates material that allowed them to scam others.
WinCapita
was a scheme run by Finnish criminals that involved about €100 million.
was partially motivated by the collapse of pyramid schemes.
In early 2006, Ireland
was hit by a wave of schemes with major activity in Cork
and Galway
. Participants were asked to contribute €20,000 each to a "Liberty" scheme which followed the classic eight-ball model. Payments were made in Munich
, Germany
to skirt Irish tax laws concerning gifts. Spin-off schemes called "Speedball" and "People in Profit" prompted a number of violent incidents and calls were made by politicians to tighten existing legislation. Ireland has launched a website to better educate consumers to pyramid schemes and other scams.
On 12 November 2008, riots broke out in the municipalities of Pasto
, Tumaco
, Popayan
and Santander de Quilichao
, Colombia
after the collapse of several pyramid schemes. Thousands of victims had invested their money in pyramids that promised them extraordinary interest rates. The lack of regulation laws allowed those pyramids to grow excessively during several years. Finally, after the riots, the Colombian government was forced to declare the country in a state of economic emergency to seize and stop those schemes. Several of the pyramid's managers were arrested, and are being prosecuted for the crime of "illegal massive money reception."
The Kyiv Post
reported on 26 November 2008 that American citizen Robert Fletcher (Robert T. Fletcher III; aka "Rob") was arrested by the SBU (Ukraine State Police) after being accused by Ukrainian investors of running a Ponzi scheme
and associated pyramid scam netting US$20 million. (The Kiev Post also reports that some estimates are as high as US$150M.)
Throughout 2010 and 2011 a number of authorities around the world including the Australian Competition and Consumer Commission
, the Bank of Namibia
and the Central Bank of Lesotho
have declared TVI Express to be a pyramid scheme. 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.
Business model
A business model describes the rationale of how an organization creates, delivers, and captures value...
that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
or services to the public. Pyramid schemes are a form of fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
.
Pyramid schemes are illegal in many countries including Albania
Albania
Albania , officially known as the Republic of Albania , is a country in Southeastern Europe, in the Balkans region. It is bordered by Montenegro to the northwest, Kosovo to the northeast, the Republic of Macedonia to the east and Greece to the south and southeast. It has a coast on the Adriatic Sea...
, Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
, Bulgaria
Bulgaria
Bulgaria , officially the Republic of Bulgaria , is a parliamentary democracy within a unitary constitutional republic in Southeast Europe. The country borders Romania to the north, Serbia and Macedonia to the west, Greece and Turkey to the south, as well as the Black Sea to the east...
, Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
, Colombia
Colombia
Colombia, officially the Republic of Colombia , is a unitary constitutional republic comprising thirty-two departments. The country is located in northwestern South America, bordered to the east by Venezuela and Brazil; to the south by Ecuador and Peru; to the north by the Caribbean Sea; to the...
, Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
, the Dominican Republic
Dominican Republic
The Dominican Republic is a nation on the island of La Hispaniola, part of the Greater Antilles archipelago in the Caribbean region. The western third of the island is occupied by the nation of Haiti, making Hispaniola one of two Caribbean islands that are shared by two countries...
, Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...
, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, Hungary
Hungary
Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...
, Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...
, Iran
Iran
Iran , officially the Islamic Republic of Iran , is a country in Southern and Western Asia. The name "Iran" has been in use natively since the Sassanian era and came into use internationally in 1935, before which the country was known to the Western world as Persia...
, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, Malaysia, Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
, Nepal
Nepal
Nepal , officially the Federal Democratic Republic of Nepal, is a landlocked sovereign state located in South Asia. It is located in the Himalayas and bordered to the north by the People's Republic of China, and to the south, east, and west by the Republic of India...
, The Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
, New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
, Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
, the Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...
, Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
, Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...
, Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
, South Africa
South Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
, Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
, Sri Lanka
Sri Lanka
Sri Lanka, officially the Democratic Socialist Republic of Sri Lanka is a country off the southern coast of the Indian subcontinent. Known until 1972 as Ceylon , Sri Lanka is an island surrounded by the Indian Ocean, the Gulf of Mannar and the Palk Strait, and lies in the vicinity of India and the...
, Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
, Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
, Taiwan
Taiwan
Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following...
, Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
, Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
, the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
These types of schemes have existed for at least a century, some with variations to hide their true nature, and many people believe that multilevel marketing is also a pyramid scheme.
Concept and basic models
A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit. The essential idea is that a "con artist"Confidence trick
A confidence trick is an attempt to defraud a person or group by gaining their confidence. A confidence artist is an individual working alone or in concert with others who exploits characteristics of the human psyche such as dishonesty and honesty, vanity, compassion, credulity, irresponsibility,...
Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the "business" expands.
Such "businesses" seldom involve sales of real products or services to which a monetary value might be easily attached. However, sometimes the "payment" itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information.
The flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the "pharaoh") and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Individuals at the bottom of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.
The "Eight-Ball" model
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, who must each recruit two others.Prior instances of this scheme have been called the "Airplane Game
Airplane game
The Airplane game was a pyramid scheme active in the late 1980s in North America and Europe. The nomenclature of the various levels of the game involve participatory levels such as 'passenger', 'flight attendant', 'co-pilot' and at the top, 'pilot'...
" and the four tiers labelled as "captain," "co-pilot," "crew," and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labeled the tiers as "dessert," "main course," "side salad," and "appetizer." A person on the "dessert" course is the one at the top of the tree. Another variant, "Treasure Traders," variously used gemology
Gemology
Gemology or gemmology is the science dealing with natural and artificial gems and gemstones. It is considered a geoscience and a branch of mineralogy...
terms such as "polishers," "stone cutters," etc. or gems like "rubies," "sapphires," "diamonds," etc.
Such schemes may try to downplay their pyramid nature by referring to themselves as "gifting circles" with money being "gifted." Popular schemes such as the "Women Empowering Women" do exactly this.
Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme - with the Airplane Game as the example, the person at the top of this tree is the "captain," the two below are "co-pilots," the four below are "crew," and the bottom eight joiners are the "passengers."
The eight passengers must each pay (or "gift") a sum (e.g. $1000) to join the scheme. This sum (e.g. $8000) goes to the captain who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they advance through the crew and co-pilot tiers and exit the scheme as a captain. Therefore, the participants in the bottom 3 tiers of the pyramid lose their money if the scheme collapses.
If a person is using this model as a scam, the confidence trickster would make the lion's share of the money. They would do this by filling in the first 3 tiers (with 1, 2, and 4 people) with phony names, ensuring they get the first 7 payouts, at 8 times the buy-in sum, without paying a single penny themselves. So if the buy-in were $1000, they would receive $8,000, paid for by the first 8 investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible to allow them to skim even more from it before it collapses.
Although the 'Captain' is the person at the top of the tree, having received the payment from the 8 paying passengers, once he or she leaves the scheme is able to re-enter the pyramid as a 'Passenger' and hopefully recruit enough to reach captain again, thereby earning a second payout.
Matrix schemes
Matrix schemes use the same fraudulent non-sustainable system as a pyramid; here, the participants pay to join a waiting list for a desirable product which only a fraction of them can ever receive. Since matrix schemes follow the same laws of geometric progression as pyramids, they are subsequently as doomed to collapse. Such schemes operate as a queue, where the person at head of the queue receives an item such as a television, games console, digital camcorder, etc. when a certain number of new people join the end of the queue. For example ten joiners may be required for the person at the front to receive their item and leave the queue. Each joiner is required to buy an expensive but potentially worthless item, such as an e-book, for their position in the queue. The scheme organizer profits because the income from joiners far exceeds the cost of sending out the item to the person at the front. Organizers can further profit by starting a scheme with a queue with shillShill
A shill, plant or stooge is a person who helps a person or organization without disclosing that he or she has a close relationship with that person or organization...
names that must be cleared out before genuine people get to the front. The scheme collapses when no more people are willing to join the queue. Schemes may not reveal, or may attempt to exaggerate, a prospective joiner's queue position which essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis.
Connection to multi-level marketing
The network marketing or multi-level marketingMulti-level marketing
Multi-level marketing is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation...
(abbreviated MLM) business has become associated with pyramid schemes as "Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure." and the fact while some people call MLMs in general "pyramid selling" others use the term to denote an illegal pyramid scheme masquerading as an MLM.
The United States Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
(FTC) warns "Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get 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." and states that research is your best tool and gives eight steps to follow:
- Find — and study — the company’s track record.
- Learn about the product
- Ask questions
- Understand any restrictions
- Talk to other distributors (beware shills)
- Consider using a friend or adviser as a neutral sounding board or for a gut check.
- Take your time.
- Think about whether this plan suits your talents and goals
Some believe MLMs in general are nothing more than legalized pyramid schemes. Even in reputable MLM companies, such as AMWAY, the top earners make up to 95% of their income from tapes and other motivational materials sold to the lower levels.
Connection to franchise fraud
Franchise fraud (or 'franchise churning') is defined by the U.S.United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
Federal Bureau of Investigation
Federal Bureau of Investigation
The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency . The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime...
as a pyramid scheme. The FBI website states:
- pyramid schemes :—also referred to as franchise fraud or chain referral schemes—are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses.
One of Pearlasia Gamboa
Pearlasia Gamboa
Pearlasia Gamboa is a Filipino American business woman involved in controversial international banking, investment, and financial development transactions, including bank fraud, securities fraud, and passport fraud, from 1990 through 2010...
’s (president of the micronation
Micronation
Micronations, sometimes also referred to as model countries and new country projects, are entities that claim to be independent nations or states but which are not recognized by world governments or major international organizations...
of Melchizedek
Dominion of Melchizedek
The Dominion of Melchizedek is a micronation known for facilitating large scale banking fraud in many parts of the world. The president was Pearlasia Gamboa, wife of vice-president David Korem...
) franchise fraud schemes was described by the Italian newspaper La Repubblica
La Repubblica
la Repubblica is an Italian daily general-interest newspaper. Founded in 1976 in Rome by the journalist Eugenio Scalfari, as of 2008 is the second largest circulation newspaper, behind the Corriere della Sera.-Foundation:...
as “one of the most diabolical international scams ever devised in recent years.”
Internet
In 2003, the United States Federal Trade CommissionFederal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
(FTC) disclosed what it called an internet-based "pyramid scam." Its complaint states that customers would pay a registration fee to join a program that called itself an "internet mall" and purchase a package of goods and services such as internet mail, and that the company offered "significant commissions" to consumers who purchased and resold the package. The FTC alleged that the company's program was instead and in reality a pyramid scheme that did not disclose that most consumers' money would be kept, and that it gave affiliates material that allowed them to scam others.
WinCapita
WinCapita
WinCapita, previously WinClub and GiiClub, was a Finnish Internet-based pyramid scheme, that advertised itself as a private investment club engaged in currency trading. It is believed to have been the largest fraud in Finnish history. It operated mainly in Finland, with a smaller number of members...
was a scheme run by Finnish criminals that involved about €100 million.
Others
The 1997 rebellion in Albania1997 rebellion in Albania
The 1997 unrest in Albania, also known as the Lottery Uprising or Anarchy in Albania, was an uprising sparked by Ponzi scheme failures...
was partially motivated by the collapse of pyramid schemes.
In early 2006, Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
was hit by a wave of schemes with major activity in Cork
Cork (city)
Cork is the second largest city in the Republic of Ireland and the island of Ireland's third most populous city. It is the principal city and administrative centre of County Cork and the largest city in the province of Munster. Cork has a population of 119,418, while the addition of the suburban...
and Galway
Galway
Galway or City of Galway is a city in County Galway, Republic of Ireland. It is the sixth largest and the fastest-growing city in Ireland. It is also the third largest city within the Republic and the only city in the Province of Connacht. Located on the west coast of Ireland, it sits on the...
. Participants were asked to contribute €20,000 each to a "Liberty" scheme which followed the classic eight-ball model. Payments were made in Munich
Munich
Munich The city's motto is "" . Before 2006, it was "Weltstadt mit Herz" . Its native name, , is derived from the Old High German Munichen, meaning "by the monks' place". The city's name derives from the monks of the Benedictine order who founded the city; hence the monk depicted on the city's coat...
, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
to skirt Irish tax laws concerning gifts. Spin-off schemes called "Speedball" and "People in Profit" prompted a number of violent incidents and calls were made by politicians to tighten existing legislation. Ireland has launched a website to better educate consumers to pyramid schemes and other scams.
On 12 November 2008, riots broke out in the municipalities of Pasto
Pasto
Pasto, officially San Juan de Pasto, is the capital of the department of Nariño, located in southwest Colombia. The city is located in the "Atriz Valley", on the Andes cordillera, at the foot of the Galeras volcano, at an altitude of 8,290 feet above sea level...
, Tumaco
Tumaco
Tumaco is a port city and municipality in the Nariño Department, Colombia, by the Pacific Ocean. It is located on the southwestern of Colombia, near to border with Ecuador, and enjoys of hot tropical climate...
, Popayan
Popayán
Popayán is the capital of the Colombian department of Cauca. It is located in southwestern Colombia between Colombia's Western Mountain Range and Central Mountain Range...
and Santander de Quilichao
Santander de Quilichao
Santander de Quilichao is a town and municipality in the Cauca Department, Colombia.-External links:...
, Colombia
Colombia
Colombia, officially the Republic of Colombia , is a unitary constitutional republic comprising thirty-two departments. The country is located in northwestern South America, bordered to the east by Venezuela and Brazil; to the south by Ecuador and Peru; to the north by the Caribbean Sea; to the...
after the collapse of several pyramid schemes. Thousands of victims had invested their money in pyramids that promised them extraordinary interest rates. The lack of regulation laws allowed those pyramids to grow excessively during several years. Finally, after the riots, the Colombian government was forced to declare the country in a state of economic emergency to seize and stop those schemes. Several of the pyramid's managers were arrested, and are being prosecuted for the crime of "illegal massive money reception."
The Kyiv Post
Kyiv Post
The Kyiv Post is Ukraine's leading English-language newspaper.-History:The Kyiv Post was founded in September 1995 by an American, Jed Sunden. The paper covers politics, business and entertainment. The staff is a team of Western and Ukrainian journalists. Historically, the editorial policy has...
reported on 26 November 2008 that American citizen Robert Fletcher (Robert T. Fletcher III; aka "Rob") was arrested by the SBU (Ukraine State Police) after being accused by Ukrainian investors of running a Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
and associated pyramid scam netting US$20 million. (The Kiev Post also reports that some estimates are as high as US$150M.)
Throughout 2010 and 2011 a number of authorities around the world including the Australian Competition and Consumer Commission
Australian Competition and Consumer Commission
The Australian Competition and Consumer Commission is an independent authority of the Australia government. It was established in 1995 with the amalgamation of the Australian Trade Practices Commission and the Prices Surveillance Authority to administer the Trade Practices Act 1974...
, the Bank of Namibia
Bank of Namibia
The Bank of Namibia was established in 1993 to replace the never opened Namibia Reserve Bank. The Bank of Namibia is the only institution that is permitted to issue the Namibian dollar by authority that has been given to it under an Act of the Namibian Parliament. The head of the Bank of Namibia is...
and the Central Bank of Lesotho
Central Bank of Lesotho
The Central Bank of Lesotho is the central bank of Lesotho, in southern Africa. The bank is located in Maseru and its current governor is Dr. M. Senaoana.-See also:*Central banks and currencies of Africa*Economy of Lesotho*List of central banks...
have declared TVI Express to be a pyramid scheme. 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.
In popular culture
- Many FacebookFacebookFacebook is a social networking service and website launched in February 2004, operated and privately owned by Facebook, Inc. , Facebook has more than 800 million active users. Users must register before using the site, after which they may create a personal profile, add other users as...
games operate on a pyramid scheme system where you are greatly hindered in the game play unless you recruit your friends and family to play the game too. - Stanton, a character of Charles Maturin's famous novel Melmoth the WandererMelmoth the WandererMelmoth the Wanderer is a gothic novel published in 1820, written by Charles Robert Maturin .- Synopsis :...
, while put in Bedlam by his relative, finds a plan, written by some of his predecessors in the room he is placed. It is a plan of baptising all the population of Ottoman Empire, beginning with the Turkish ambassador, and is a classical pyramid scheme. - The feature film Children of InventionChildren of InventionChildren of Invention is an American independent feature film written and directed by Tze Chun. It premiered at the 2009 Sundance Film Festival, screened at more than 50 film festivals, and won 17 festival awards including 8 Grand Jury or Best Narrative Feature prizes. The film was released...
tells the story of a mother who gets entangled in a pyramid scheme. - The novel Welcome to the N.H.K.Welcome to the N.H.K.is a Japanese novel written by Tatsuhiko Takimoto, with a cover illustration by Yoshitoshi ABe, and was published by Kadokawa Shoten in Japan on January 28, 2002. The novel was first published in English by Tokyopop on October 9, 2007...
features a story arc wherein the main character is caught up in a crooked multi-level marketing scam called 'Mouse Road'. - On the NBC sitcom The Office, it is revealed that MichaelMichael Scott (The Office)Michael Gary Scott is a fictional character on NBC's The Office, portrayed by Steve Carell, and based on David Brent from the original British version. Michael, the central character of the series, was the manager of the Scranton branch of paper and printer distribution company Dunder Mifflin Inc...
did not attend college because he lost all his tuition money in a pyramid scheme. At a later date, the same character unintentionally attempts to recruit members of his staff into selling calling cards, not realizing that he had been conned into a pyramid scheme until it is made clear by an employee. - Season one of the Channel 4Channel 4Channel 4 is a British public-service television broadcaster which began working on 2 November 1982. Although largely commercially self-funded, it is ultimately publicly owned; originally a subsidiary of the Independent Broadcasting Authority , the station is now owned and operated by the Channel...
sitcom Peep ShowPeep Show (TV series)Peep Show is a British sitcom starring David Mitchell and Robert Webb. The television programme is written by Jesse Armstrong and Sam Bain, with additional material by Mitchell and Webb themselves, amongst others. It has been broadcast on Channel 4 since 2003. The show's seventh series makes it...
, features an episode in which Jeremy becomes involved in a pyramid scheme after being ignorantly drawn into it by his neighbor Toni, whom he's trying to sleep with.
See also
- AutosurfAutosurfAutosurfs are traffic exchanges that automatically rotate advertised websites in one's web browser. Therefore, they are capable of bringing a large amount of traffic to the advertised websites. Members earn credits for each site that they view, which can then be spent to advertise members' sites by...
- Bernie Madoff
- BurnLoungeBurnLoungeBurnLounge, Inc. was founded in 2004, with offices in New York City. Its primary business was the BurnLounge online music store, and it was associated with Orbital Publishing, which produced printed matter for the company...
- Franchise fraudFranchise fraudFranchise fraud is defined by the United States Federal Bureau of Investigation as a pyramid scheme.- Franchise fraud in U.S. federal law :The FBI website states:...
- Cobra Group (company)
- High-yield investment program
- Holiday MagicHoliday MagicHoliday Magic was a multi-level marketing organization, founded in 1964, by William Penn Patrick in the United States. Originally the organization distributed goods such as home-care products and cosmetics....
- Make Money FastMake Money Fast"MAKE.MONEY.FAST" is a title of an electronically forwarded chain letter which became so infamous that the term is now used to describe all sorts of chain letters forwarded over the Internet, by e-mail spam or Usenet newsgroups...
- Multi-level marketingMulti-level marketingMulti-level marketing is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation...
- Claims of Social Security as a pyramid scheme
- Success UniversitySuccess UniversitySuccess University is a multi-level marketing program started by Matt Morris in January 2005. It has also been identified as a pyramid scheme. Success University does not employ any professors and does not have any premises; instead members are offered online courses on topics such as success in...
External links
- U.S. Securities and Exchange Commission information about pyramid schemes
- FTC consumer complaint form
- IMF feature on "The Rise and Fall of Albania's Pyramid Schemes"
- National Consumer Agency on Pyramid Schemes - Irish consumer site describes two local pyramid schemes and offers advice to would-be participants.
- PyramidSim.com simulation, graphing and calculation of various pyramid schemes.
- Australian Trade Practices Amendment Act (No. 1) 2002 Australian Law Online
- Public Warning on Pyramid Schemes Central Bank of Sri Lanka