A pyramid scheme is a fraudulent investment strategy that promises participants hefty profits based on recruiting others into the scheme rather than real business activities or the sale of actual products or services. The structure of a pyramid scheme resembles a pyramid, where a small group of initial participants recruit new members, who, in turn, recruit more participants. The scheme relies on an ever-expanding network of recruits at different levels, with those at the top benefiting the most.

In a typical pyramid scheme, participants are required to make an initial payment or investment to join. The person recruiting them receives a portion of this money, while the rest is funneled up to the higher levels of the pyramid. New participants are then encouraged to recruit others, and the cycle continues. The promise of high returns often lures people into joining, as they believe they can profit by recruiting additional members.

One key characteristic of pyramid schemes is their unsustainable nature. As the recruitment chain expands, it becomes increasingly difficult to find new participants, and the majority of members end up at the bottom levels with little chance of recouping their initial investment. Only a small percentage of participants, typically those at the top, make substantial profits, while the majority incur losses.

Regulatory authorities and governments worldwide strongly condemn pyramid schemes as illegal and deceptive practices. They are considered a form of fraud because they rely on the continuous recruitment of new members rather than legitimate business activities. To avoid falling victim to pyramid schemes, individuals should be cautious of investment opportunities that prioritize recruitment over product or service sales. Conducting thorough research, consulting financial professionals, and being skeptical of “get-rich-quick” promises can help protect against the risks associated with pyramid schemes. Always verify the legitimacy of an investment opportunity and be wary of schemes that seem too good to be true.