Definition

Noun: A pyramid scheme is a fraudulent and unsustainable business model. It is an illegal scam where participants make payments to the person who recruited them. Their primary way to earn money is not by selling a genuine product or service, but by recruiting new members who must also pay to join. The scheme collapses when it becomes impossible to recruit enough new people to support the payments promised to earlier participants, causing most people to lose their money.

Usage

A pyramid scheme is a specific type of financial fraud. It is important to distinguish it from legitimate multi-level marketing (MLM), which involves selling actual products. The term is used to describe and warn against this illegal activity.

Examples

• The authorities shut down the company after determining it was a pyramid scheme and not a legitimate sales organization.
• Many people lost their life savings after investing in what turned out to be a pyramid scheme.
• Be very cautious of any "business opportunity" where the focus is on recruiting others rather than selling a product; it might be a pyramid scheme.

Advanced Usage

• To pyramid (verb, rare and derived): To operate or participate in a pyramid scheme. (e.g., )
• Pyramiding (gerund/noun): The act of operating a pyramid scheme.

Variants and Related Words

• Ponzi scheme: A related but distinct type of fraud where returns to earlier investors are paid from the capital of newer investors, without the emphasis on a recruitment hierarchy.
• Multi-level marketing (MLM): A legal sales structure that can sometimes be difficult to distinguish from a pyramid scheme; the key legal difference is that MLMs generate revenue primarily from retail sales to end-users.

Synonyms

• Fraudulent scheme
• Scam
• Swindle (specifically of this type)

Related Idioms and Phrases

• A house of cards: This idiom describes something, like a pyramid scheme, that is insubstantial, unstable, and destined to collapse. (e.g., )

Noun

1. a fraudulent scheme in which people are recruited to make payments to the person who recruited them while expecting to receive payments from the persons they recruit; when the number of new recruits fails to sustain the hierarchical payment structure the scheme collapses with most of the participants losing the money they put in