Pyramid scheme

Source: Wikipedia

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.

Pyramid schemes have existed for at least a century. Matrix schemes use the same system as a pyramid; here, the victims pay to join a waiting list for a desirable product which only a fraction of them can ever receive.

There are other commercial models using cross-selling such as multi-level marketing 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. 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.