Pyramid scheme
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The unsustainable geometric progression of a classic pyramid scheme
A
pyramid scheme is a
non-sustainable business model that involves the exchange of
money primarily for enrolling other people into the scheme, usually without any
product or
service being delivered. It has been known to come under many guises. Some famous examples including the massive
Albanian Pyramid Schemes of
1996[1] that cause the
1997 rebellion were technically not Pyramid schemes but
Ponzi schemes.
Pyramid schemes are illegal in many countries, including the
United States,
[2] the
United Kingdom,
France,
Canada,
Malaysia,
Norway,
Australia,
[3] New Zealand,
[4] Japan,
[5] Nepal,[
citation needed]
Sri Lanka,
[6] and
Iran.[
citation needed] These types of schemes have existed for at least a century.
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[edit] Models
There are other commercial models using cross-selling such as
multi-level marketing (MLM) or
party planning which are legal and sustainable, although there is a significant grey area in many cases. Most pyramid schemes take advantage of confusion between genuine businesses and complicated but convincing moneymaking
scams.
The essential idea behind each scam is that the individual makes only one payment, but is promised to somehow receive exponential benefits from other people as a reward. A common example might be an offer that, for a fee, allows the victim to sell the same offer to other people, or receive bonuses through other people they refer. Each sale includes a fee to the original seller.
Clearly, the flaw is that there is no end benefit; the money simply travels up the chain, and only the originator (or at best a very few) wins in swindling his followers. Of course, the people in the worst situation are the ones at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves. To embellish the act, most such scams will have fake referrals, testimonials, and information.
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[edit] Internet
In 2003, an internet-based "pyramid scam"
[7] was uncovered by the
United States Federal Trade Commission (FTC), where customers would pay a registration fee to join a program and purchase a package which included Internet mail and related goods and services. The FTC's complaint states that the company assured consumers who purchased the package that it would allow them to earn significant commissions for every website sold.
The FTC alleged that the company deceptively represented that consumers who participated in their scheme would earn substantial income, when in fact most consumers lost money in the operation, and that the defendants provided deceptive marketing material to affiliates - providing them with the means to deceive others; and finally, the company failed to disclose that a substantial percentage of participants would lose money, and that the scheme was actually an illegal pyramid scheme.
[edit] "8-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.
The "8-ball" model contains a total of 15 members. Note that unlike in the picture, the triangular setup in the cue game of
eight-ball corresponds to an
arithmetic progression 1 + 2 + 3 + 4 + 5 = 15. The pyramid scheme in the picture in contrast is a
geometric progression 1 + 2 + 4 + 8 = 15.
Prior instances of this scam have been called the "Plane 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 labelled the tiers as "dessert", "main course", "side salad", and "entree". 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 "rubies", "sapphires", "diamonds" etc.
Such schemes may try to downplay their pyramid nature by referring to themselves as "binary systems", or "gifting circles" with money being "gifted". Popular scams such as the "Women Empowering Women"
[8] do exactly this. Joiners may even be told that "gifting" is a way to skirt around tax laws.
Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme - 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 exit the scheme as a captain. This requires that 14 others have been persuaded to join underneath them.
As such, the bottom 3 tiers of the pyramid
always lose their money when the scheme finally collapses. Consider a pyramid consisting of tiers with 1, 2, 4, 8, 16, 32 and 64 members. The highlighted section corresponds to the previous diagram.
No matter how large the model becomes before collapse, approximately 88% of all people will lose.
If the scheme collapses at this point, only those in the 1, 2, 4 and 8 got out with a return. The remainder in the 16, 32, and 64 tier lose everything. 112 out of the total 127 members or 88% lost all of their money.
During a wave of pyramid activity, a surge frequently develops once a significant fraction of people know someone personally who exited with a $8000 payout for example. This spurs others to seek to get in on one of the many pyramids before the wave collapses.
The figures also hide the fact that 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 phoney 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 $56,000, paid for by the first 56 investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible in order to allow them to skim even more from it before the collapse.
Other cons may also be effective. For example, rather than using fake names, a group of seven people may agree to form the top three layers of a pyramid without investing any money. They then work to recruit eight paying passengers, and pretend to follow the pyramid payout rules, but in reality split any money received. Ironically, though they are being conned, the eight paying passengers are not really getting anything less for their money than if they were buying into a 'legitimate' pyramid which had split off from a parent pyramid. They truly are now in a valid pyramid, and have the same opportunity to earn a windfall if they can successfully recruit enough new members and reach captain. This highlights the fact that by 'buying' in to a pyramid, passengers are not really obtaining anything of value they couldn't create themselves other than a vague sense of "legitimacy" or history of the pyramid, which may make it marginally easier to sell passenger seats below them.
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 8-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.
[9] Ireland has launched a website to better educate consumers to pyramid schemes and other scams.
[10]
]Attatama Ndgayan oya Network marketing & Pyramid Athara wenasa danne nadda. Oya Anita Ona ratakin Ahala Balanna Network Marketing mokadda Kiyala 
