Pyramid Scheme

Members at the top collect fees from those below them, who must recruit more members to recover their own payment. The numbers needed grow quickly: each level requires many more people than the one before, and the supply of new recruits runs out well before most members are repaid. Most participants therefore lose money, and only the earliest ones gain. Some schemes disguise themselves with a product, training course or membership, but the real income comes from joining fees. Many countries ban them. Legitimate multi-level marketing differs by earning mainly from genuine retail sales to customers. A Ponzi scheme also relies on new money, but investors in it do not recruit others. The test applied is where the money comes from: product sales to the public, or fees paid by new joiners.

A person pays 1,000 to join a network selling wellness packages. She is told she will earn 400 for every new member she signs and little is said about selling products. She recruits three friends, who each recruit three more. By the fifth level, recruits cannot find enough new members, and most lose their fee. The consumer authority shuts the scheme down and orders the promoters to stop.