Financial Pyramid Scheme

A fraudulent scheme in which participants’ profits depend primarily on recruiting new members rather than on real economic activity or sales of products or services. Participants invest money with promises of high returns, but to earn profits, they must recruit new investors. Funds from new participants are used to pay the “profits” of earlier investors. The system collapses when new recruitment stops. Financial pyramid schemes are illegal, rely on misleading information, and cause losses for most participants. They are investigated by financial regulators, and organizers can face severe penalties. They should not be confused with legitimate multi-level marketing (MLM) based on real product or service sales.