What is a Pyramid Scheme?
Have you ever received a chain letter that asked you to mail one dollar to the
top person on the list and to send the letter to 10
friends? If so, you were solicited for an illegal pyramid.
Pyramid schemes are illegal money-making ventures for individuals, businesses,
and small groups of people. A typical pyramid
scheme involves a few individuals at the top who recruit participants who, in
turn, recruit other participants to offer something
of value (usually money, but in some cases, time) to the organization. Recruits
are offered the promise of large sums of money
if they successfully bring in others to pay money to join the pyramid. Pyramid
schemes focus on the exchange of money and
recruitment. Usually, there is no legitimate product being sold.
How are Pyramid Schemes Disguised?
Pyramid schemes may be disguised as games, chain letters, buying clubs,
motivational companies, mail order operations, or
investment organizations. Although some pyramid schemes call themselves
multi-level marketing operations, not all multi-level
marketing companies are pyramids. The sale of legitimate products is what
distinguishes multi-level operations from pyramids.
When the emphasis is on recruiting new members rather than selling something of
value the organization is probably an illegal
How do Pyramid Schemes Work?
Basically, a pyramid scheme is formed when a single promoter (or small group of
promoters) collects money from a certain
number of "friends" and instructs them to collect more money from more of their
"friends." The cycle goes on from there. As
the pyramid grows, the number of people involved becomes too large to sustain
the pyramid. Some people will fail to send in
their money, or recruit the required number of "friends," and the pyramid
crumbles. The majority of people end up on the
"bottom" of the pyramid and inevitably will lose their initial "investment."
They won't get their money back or earn their
promised fortune because no one is beneath them in the pyramid adding new money
to the pot.
Why do Pyramid Schemes Fail?
Pyramid schemes collapse when a few people drop out or refuse to pay, and new
members are not recruited in their place. In
order for a pyramid scheme to profit, there would have to be a never-ending
supply of potential (and willing) participants. In
reality, however, the supply of participants is limited, and each new level of
participants has less chance of recruiting others and
a greater chance of losing money.
How a Typical Pyramid is Organized
A simple pyramid - for example, a five level program built on recruitment by
fours - might work like this:
A new recruit would pay $100 to "join" the organization.
That money would then be disbursed at regular intervals by the company -
$25 to the recruiter, $25 to the company,
and $50 to the recruiter's "upline" in the form of $10 payments to the
recruiter's recruiter, and so on through five levels.
The new recruit would recover the $100 "fee" by recruiting four more
people, each of whom would pay the recruiter
From this point a participant would then make money from all recruiting
done by the four recruits and their recruits.
Assuming successful recruiting by four people down through each of five
levels, a participant could (but probably never
will) make a cumulative total of $54,560:
1.$160 on the first level - e.g., four people each recruiting four
others at $10 a person (4x4=16x$10=$160);
2.$640 on the second level - e.g., 16 people each recruiting four
persons at $10 each (16x4=64x$10=$640);
3.$2,560 on the third level (64x4=256x$10);
4.$10,240 on the fourth level (256x4=1024x$10);
5.$40,960 on the fifth level (4x1024=4096x$10).
Pyramids are illegal. Because pyramid sales plans are by their very nature
deceptive, they are illegal. There is a real risk that a
pyramid operation will be closed down by police and the participants subject to
fines and possible arrest.
Pyramids are deceptive. Participants in a pyramid, whether they mean to or not,
are deceiving those they recruit. Few would
pay to join if the odds stacked against them were fully explained.
Pyramids are losers. Pyramid Schemes are based on simple mathematics: many
losers pay a few winners.
Pyramids inevitably collapse because it is mathematically impossible to recruit
the numbers of people required to support the
pyramid. A nine-level pyramid, which is built when each participant gets six
"friends" to join, would involve over ten million
Why Would Anyone Pay to Join a Pyramid?
Pyramid promoters are masters of group psychology. At recruiting meetings they
create a frenzied, enthusiastic atmosphere
where group pressure and promises of easy money play upon people's greed and
fear of missing a good deal. It is difficult to
resist this kind of appeal unless you recognize that the scheme is rigged
Multi-level Marketing Companies
Multi-level marketing companies differ from pyramid schemes because they are
usually legitimate business opportunities. The
sale of legitimate products is what distinguishes multi-level marketing
operations from pyramids.
If the emphasis in a multi-level marketing company is to build a sales force
rather than sell the company's products, it may be
an illegal pyramid.
The Difference Between Pyramid Schemes and Multi-level Marketing
Many pyramid promoters attempt to make their schemes look like a multi-level
marketing company by using a line of
near-worthless products or newsletters and claiming to be in the business of
selling them. In pyramid schemes, little or no effort
is made to actually market the products. Often there is not even an established
market for the products. Rather the "sale" of
such merchandise is used as a front for the transactions which occur only among
and between the operation's distributors.
In pyramid schemes, the emphasis in the sales pitch is on recruiting - building
up the organization and the number of
participants and on collecting the "start up" fee - not on selling the products.
Pyramid schemes want to make money from you,
not the product sales.
Pyramid Scheme vs. Multi-level Marketing
Compensation based on recruiting vs. Compensation based on sales
Few or no sales to consumers vs. Sell legitimate products to established markets
Substantial start-up costs vs. Generally small start-up fee
Potential to be stuck with large amounts of unsold goods vs. Will buy back
unsold goods if you decide to quit the business
Make money from you vs. Make money with you
Take your time. Don't be rushed into any business deal. Show your attorney
any contracts you receive from the
company. A legitimate business opportunity won't disappear overnight.
Ask questions about the competency and experience of the company and its
officers; the products, including the
potential market in your area; start-up fees; buy-back provisions; and
actual earnings of current distributors.
Get written copies of all available company literature.
Check with others who have experience with the company and its products.
Find out if the products are actually being
sold to consumers.
Investigate and verify all information. Contact the Division of Consumer
Protestion, your local Chamber of Commerce,
or the Better Business Bureau if you suspect a company may be engaged in an
illegal pyramid scheme.
If a pyramid promoter or recruiter tells you that the program has been
examined and approved by the Division of
Consumer Protection or any other state agency, know that the claim is not
true! The Utah consumer Protection does
not approve any marketing programs. If such representations are made to
you, please notify the division at 530-6601.
For Further Information:
Division of Consumer Protection Utah Department of Commerce 160 East 300 South
Salt Lake City, Utah 84145 (801)
530-6601 (800) 721-7233
This Document last updated April 09, 1996
______________________________ Reply Separator _________________________________
Subject: Re: this really works$$$$$$
Author: r947751 at EDU.TUTCC.TUT.AC.JP (GOGONEA CAMELIA) at biosmtp
Date: 10/22/96 5:42 PM
Taking 5 minutes to read what follows can change your life :
Read this testimonial:
"I saw an article in an internet newsgroup telling me I could
make $50,000 within a month for an investment of only $5.
I thought it was a huge joke. I spoke to my wife, attorney
and friends about it, and they all agreed it was some kind
of scam. I can't stand scams, because usually someone gets
burned, and I didn't want it to be me. Of course, I rejected
the idea at first. after a short period of about two weeks
,I thought : "I have already heard of such things. But on
the Internet ?!?!? ". I decided that even if I had to throw
5$ into the fire, I wouldn't mind it that much, and gave it
a try .After all I needed a LOT more than five dollars.
Two weeks later, I began receiving money in the mail! I
could not believe it! Soon, hundreds, and then thousands of
dollars began to roll in. Within 4 weeks, I had received a
total of $32,445! It came from everywhere in the world. My
bank account has changed its "-" into a big "+" (++++)!!!,I
bought myself a car and things I wanted for a long long time
for my wife and kids!"
IT CAN HAPPEN TO YOU!
If you follow the three steps below, there is no reason why
the same shouldn't happen to you! This is a legitimate
investment opportunity. You invest $5, and you receive a
return on your investment. So does the next investor. NOT
ILLEGAL, NOT A CHAIN LETTER- PERFECTLY LEGITIMATE.
If you are not interested, then don't participate, but
please print this article and pass it on to someone who may
be interested, so they can take advantage.
The procedure is simple: 1) Write your name and address on 5
sheets of paper. Below that, write the words, "Please add
me to your mailing list." Fold $1 note or bank draft or
money order in each piece of paper and mail them to the
following 5 addresses.:
1. Scott McMoran
19 Botany Circle.
Willingboro, NJ 08046 USA
2. Jeremy Anderson
2901 Birnam Wood Apt #611
Bellingham, WA 98225 USA
3. Jim Wilson
4101 Green Oaks Blvd. W. #242
Arlington, TX 76016 USA
4. russ copeland
19360 s. henrici rd.
Oregon city Or. 97045
5. Camelia Gogonea
Toyohashi University of Technology
International House, Room B-101
Tempaku-cho, Toyohashi 441, JAPAN
2) Now remove the top name from the list, and move the other
four names up. In other words, #5 becomes #4 and so on. Put
your name as the fifth one on the list. Use a simple text
editor such as Notepad, in your "accessories" window (If
you have MS-Windows),or DOS editor. In fact, any editor
3) Post the article to at least 200 newsgroups. There are
17,000, so it shouldn't be hard to find that many. Try
posting to as many newsgroups as you can, and the bigger
the newsgroup is, the more people are to see your message!
You are now in the mail order investment business, and
should start seeing returns within a week or two. Of course,
the more newsgroups you post to, the greater your return is.
If you wish to remain anonymous, you may use a psuedonym,
call yourself "The Manager", "The Boss", whatever but make
sure your address is correct.
Now, here is why the system works:
-Of every 200 posts I made, I received 5 responses. Yes,
only 5. You make $5 for every 200 posts with your name at #5.
-Each person who sent you $1 now also makes 200 additional
postings with your name at #4. ie. 1000 postings. On average
therefore, 50 people will send you $1 with your name at #4.
-Your 50 new agents make 200 postings each with your name at
#3 or 10,000 postings. Average return 500 people = $500.
They make 200 postings each with your name at #2=100,000
postings=5000 return at $1 each=$5000.
-Finally, 5,000 people make 200 postings with your name at
#1 and you get a return of $50,000 before your name drops
off the list. AND THATS IF EVERYONE DOWN THE LINE MAKES 200
POSTINGS! Total income in one cycle=$55,000.
From time to time, when you see your name no longer on the
list, you take the latest posting that appears in the
newsgroups, and send out another $5, and put your name at
#5, and start posting again. Remember, 200 postings is only
a guideline. the more you post, the greater the return.
Lets review why you should do this. THE ONLY COST IS $5, AND
5 STAMPS, AND 5 ENVELOPES. Anyone can afford $5 for such an
effortless investment with such SPECTACULAR RETURNS.
Some people have said to me, "what happens if the scheme is
played out and no one sends me any money? "Big Deal, so you
lose $5-but what are the chances of that happening ?? Do you
Realize that NOBODY cares for the LEGAL chance of winning
such a BIG money as 50,000.00 $$$$ ???? and all for a
microscopic investment of five separate dollars? just think
of all of the new Internet users that join the net every
There are millions of internet users, and millions of new
net surfers every month !!! This is the great plus of the
Internet, people all over the world can hear you and listen
carefully if you talk reasonably. Everyone will take that
chance ! I agree, If it wasn't the Internet, and was a
small circle of people, the chance wouldn't have been so
small. the amount of money had to be 200 times bigger, and
the chances were zero. It wouldn't succeed.
But here, on the Internet, it is a giant village, where new
thousands of members join in every day ! you CAN'T lose !!!!
Remember- read the instructions carefully, and play fairly.
That's the only way this will work. Get a printout so you
can refer back to this article easily.
Try to keep a list of everyone that sends you money and
always keep an eye on the postings to make sure everyone is
playing fairly. You know where your name should be.
REMEMBER-HONESTY IS THE BEST POLICY. YOU DO NOT NEED TO
CHEAT THIS IDEA TO MAKE MONEY!! BESIDES,NOT PLAYING THE
GAME FAIRLY IS ILLEGAL.SO LET'S BE REASONABLE AND PLAY
FAIRLY,SO WE CAN ALL ENJOY THE INTERNET GOLD MINE.
GOOD LUCK FOR YOU ALL, And remember, play fair and you'll
win, I don't want to mention what might happen to those who
won't. AND AGAIN,SEE YOU NEXT TIME WITH SOMETHING YOU
WANTED FOR A LONG TIME !!!