PYRAMID SCHEME Meaning and
Definition
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A pyramid scheme is a fraudulent business model in which participants are promised significant financial gains based on the recruitment of new members into the scheme rather than on the sale of actual products or services. The term "pyramid" refers to the hierarchical structure of the scheme, where the initial promoter or a few early participants occupy the top positions, and the subsequent recruits form the lower levels.
In a pyramid scheme, new participants are required to make a financial investment to join the scheme. They are usually enticed by the promise of high returns or extravagant profits, which are claimed to be achieved through the recruitment of others. The structure relies heavily on the continuous recruitment of new members to sustain any financial gains for existing participants.
However, as the scheme expands, it becomes increasingly difficult to recruit new members, resulting in the majority of participants failing to make substantial profits or any profit at all. Ultimately, only those who entered early or occupy top positions benefit, while the majority endure financial losses.
Pyramid schemes are illegal in most countries because they are deemed deceptive and exploitative. They can cause considerable financial harm to participants who often invest more money than they can afford to lose in pursuit of false promises of wealth. Identifying the absence of genuine products or services being sold and the heavy reliance on recruitment can distinguish a pyramid scheme from a legitimate multi-level marketing (MLM) business structure, which is based on actual product sales.
Common Misspellings for PYRAMID SCHEME
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- ptramid scheme
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Etymology of PYRAMID SCHEME
The word "pyramid scheme" originates from the shape of a pyramid, which symbolizes the structure or organization of this fraudulent scheme. The term was coined due to the resemblance between the structure of a pyramid and the pattern of the scheme itself, with an initial person or group of individuals at the top, followed by layers of participants underneath them, forming a pyramid-like shape.
The term "pyramid scheme" was first used in the United States during the mid-20th century to describe fraudulent investment operations where participants are promised high returns for recruiting others into the scheme rather than through genuine investments or actual products/services. As the scheme grows, the base widens, implying more and more recruits are needed to sustain it. Ultimately, only those at the top benefit, while the lower-level participants lose their investments.
The concept of using a pyramid structure to deceive people predates the specific term "pyramid scheme".
Similar spelling words for PYRAMID SCHEME
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