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PYRAMID SCHEMES

PYRAMID SCHEMES are frauds that pay a hierarchy at the top of a triangle out of investments made by those at the bottom. Often confused with legitimate multilevel MARKETING, pyramids are felonies in most states. In most scenarios a few people offer a seemingly attractive product or service and recruit people to sell it but require an investment for participation. Those investors are then encouraged to recruit still more participants. In legitimate multilevel marketing, profit comes from sales to actual customers; in pyramids profits come from cash investments of recruits and product sales to those recruits. Eventually, the pool of recruits dries up, leaving latecomers unable to recoup their investments. One popular small operation involves a plane scenario. A "pilot" sits atop the pyramid, the next level has two "copilots," the third level four "flight attendants," and the fourth and bottom level eight "passengers." Each passenger pays an entry fee, usually a few thousand dollars. The money is given to the pilot, who "jettisons" with huge profits. The plane then breaks into two new pyramids, with each co-pilot now sitting as the pilot. The new flight attendants then recruit fresh passengers, usually friends and relatives, and the scheme continues until it collapses under its own weight.

BIBLIOGRAPHY

Bulgatz, Joseph. Ponzi Schemes, Invaders from Mars, and More Extraordinary Popular Delusions and the Madness of Crowds. New York: Harmony Books, 1992.

Kathleen B. Culver/C. W.

See also Crime.