Types of pyramid schemes AND how YTB uses it

A pyramid scheme is a means of transferring money from duped investors at the bottom of a pyramid to those at the top, who initiate the recruitment of an endless chain or pyramid of participants. Pyramid promoters promise substantial income to those who “work the system,” but it is considered by law enforcement in most jurisdictions in the U.S. to be an unfair and deceptive practice because of the mathematical certainty that approximately 90% or more will always be in a losing position at the bottom – whether it collapses on its own, is shut down by authorities, evolves into another program, or moves on to another area.
While it is true that in most legitimate businesses, entrepreneurs lose money or eventually quit the business, the odds of failure are not guaranteed. Success is dependent on market forces and skill and the amount of time, money, and effort invested in the enterprise. However, in an illegal pyramid scheme, the more one invests in the enterprise, the more one loses – with the notable exception of those at the top of the pyramid, which are usually the first ones who entered into a given market. Success is dependent on time of entry and/or on willingness to aggressively recruit and deceive a downline of participants into believing the program is a legitimate enterprise.
Pyramid schemes come in many forms and with many disguises, including:

1. NAKED, NO-PRODUCT PYRAMID SCHEMES

Participants buy into the scheme and move up four or five levels towards the top by recruiting others, who must do the same. The top person pockets all the money and then the next ones in line move up. The originator may move on to start another pyramid. Since no products are offered, these are easy to detect and are often shut down rather quickly by authorities. Losses are usually no more than a few hundred or a few thousand dollars and aggregate harm is minimal, so they seldom attract much attention by law enforcement or by the media. Included in this category are pyramid games, such as the “airplane game,” or pyramid parties, such as the “dinner party,” etc.

2. GIFTING OR AFFINITY SCHEMES

These are essentially no-product pyramid schemes, but they are disguised as gifts given voluntarily in order to enter the pyramid. Promoters claim they are empowering women or churches or some other group of people striving to gain financial advantage. They do not fool most officials in law enforcement, and the media and the public often unite to support law enforcement in shutting them down. They have been successful in some states for brief periods of time, but seldom gain wide support. Aggregate losses to society are minimal.

3. REPORT CHAINS AND OTHER INEXPENSIVE PYRAMID SCHEMES PROMOTED OVER THE INTERNET

These involve spamming the Internet with offers to participate in an endless chain of useful “reports,” which are usually readily available information that has been photocopied and added to the chain, much like a chain letter. The cost to participate is very small – usually under $20. While they are hard to control in a medium as unregulated as the Internet, actual financial losses are almost trivial. The real harm is their tendency to hog valuable computer space and time. Internet matrices are also pyramid schemes that cause more irritation to serious web surfers than actual financial harm to participants.

4. PRODUCT-BASED PYRAMID SCHEMES

These are the pyramid schemes of choice for at least 90% of promoters of schemes designed to enrich a few at the expense of a multitude of downline investors. Recruits are deceived into buying “potions and lotions” with claims of magical properties and powers – and promises of huge income for sharing these dandy items with friends and neighbors. Promoters exploit the dreams and social capital of participants, who almost never file complaints with authorities when they come up empty – which happens to approximately 99.9% of them. Because participants don’t complain (for reasons I will explain another time), law enforcement seldom does anything to contain them. These programs go by such terms as “multi-level marketing” (MLM), “network marketing,” “consumer direct marketing,” etc.
Product-based pyramid schemes recruit aggressively until de facto saturation makes recruiting difficult in a given market, moving on to other markets or starting new “divisions,” thus maintaining themselves in a continuously revolving door of new recruits, each of whom buys or subscribes to products to get in on this “ground floor opportunity.” In order to succeed, one must first be deceived, then maintain a high level of deception, and finally go about aggressively deceiving others.

Aggregate losses to society from product-based pyramid schemes total tens of billions of dollars every year and affect millions of victims world-wide. Approximately 99.9% of participants lose money – far higher than for no-product pyramid schemes. Most recruits participate on a modest scale, buying a few products and then quitting. Harm to more serious participants ranges from a few hundred dollars to loss of one’s life savings, career, or worse – breakup of families, even depression and/or suicide. The ones who get hurt the most are individuals who most enthusiastically embrace the promises and deceptions of the promoters and put their savings, credit, and whole heart and soul into this bogus “business opportunity of a lifetime.” If you had read the thousands of letters we have received from victims world-wide, you would not see MLM as a harmless home business – and certainly not a profitable one.


For More Information Contact:

Daryl D. Alex
Regional Executive
Traverus Travel and TeleVerus Cell Phones
1.800.781.3254
1.877.744.3431
225.590.7700