Sage-Tips

What makes a company a pyramid scheme?

A pyramid scheme is a fraudulent system of making money based on recruiting an ever-increasing number of “investors.” The initial promoters recruit investors, who in turn recruit more investors, and so on. The scheme is called a “pyramid” because at each level, the number of investors increases.

What company is not a pyramid scheme?

In an interview, Herbalife President Des Walsh said the company is not a pyramid scheme because it sells “real products to real people” and doesn’t directly pay for recruiting new distributors.

What are pyramid scheme companies called?

Businesses that involve selling products to family and friends and recruiting other people to do the same are called multi-level marketing (MLM), network marketing, or direct marketing businesses.

Are there any companies that are considered pyramid schemes?

Here is a list of companies considered to be pyramid schemes, a pyramid scheme company list if you will. This is one of the few companies investigated and sued by the Federal Trade Commission that was shut down as a result. Founded as an MLM company in 2004, BurnLounge was an online music store.

What is the difference between pyramid scheme and Ponzi scheme?

While Ponzi schemes are certainly fraudulent, they are not necessarily hierarchical in nature, which is one of the defining characteristics of the pyramid scheme. Additionally, in a Ponzi scheme, “investors” are not asked to recruit others, nor are they told where their payoff would come from.

What was the first ever pyramid scheme?

It is impossible to know historically which was the first ever pyramid scheme, since fraud has been around for as long as human civilization. However, in her talk to the FTC in 1998, Debra Valentine says that it was in the 1970s several factors pushed the FTC to get involved.

Is BurnLounge a pyramid scheme?

BurnLounge referred to this model as “concentric retail.” The FTC argued that because BurnLounge paid more to these customers for selling subscriptions than for selling music, it is actually a pyramid scheme. Because “recruits” pay more than the actual product does, it is a pyramid scheme, per the FTC’s argument.