Pyramid Scheme

A fraudulent business model in which participants are recruited primarily by paying an up front fee in exchange for the right to recruit further participants and collect a share of their fees, rather than through the sale of any genuine product or service, so that returns to earlier participants depend entirely on a continually expanding base of new recruits. Because the number of new participants required to sustain payouts grows exponentially, the scheme inevitably collapses once recruitment can no longer keep pace, leaving the great majority of participants, particularly those who joined later, with a financial loss. Most jurisdictions criminalize operating or promoting a pyramid scheme as a distinct fraud offense, separate from a lawful multi-level marketing business in which genuine product sales generate the bulk of participant income.