Pyramid scheme: how it works and why it must collapse

• The invitation comes from someone you know, who has been told the same story and believes it.
• A few early members really have been paid, and are shown off as proof.
• It is presented as a community, a movement or a business of your own, with meetings, slogans and ranks.
• There may be a real product. What matters is whether the money comes from selling it to customers or from signing up members.

• The reward is for recruiting people, more than for selling anything to anyone outside the scheme.
• A fee to join, or a required purchase of stock, a course or a “package”.
• Talk of levels, lines, legs or a matrix, and of income that arrives “passively” once enough people sit beneath you.
• Urgency about getting in early, before a level “fills”.
• No clear answer to the question of who the customers are.

One sign alone proves nothing, and a fraud may show none of them at first. The Check this offer list puts fourteen such questions side by side.

• Recruiting others into a pyramid scheme can itself be an offence in many countries, including for people who were deceived into it. If you brought others in, say so when you report it; that is for the authority to weigh, not for this page.

1. 01Stop paying. Send nothing more, whatever the reason given: a tax, a fee, a deposit to “unlock” the account, a charge to recover what was lost. A further payment is the usual next step of the fraud.
2. 02Stop the conversation. There is no need to explain, argue or warn. Do not delete it, either: it is a record.
3. 03Keep records. Messages, names and numbers used, the addresses of websites, payment receipts, account and wallet details, screenshots of anything that might disappear. Note the dates.
4. 04Tell your bank or payment provider at once. Use a number you find yourself, on a card or a statement, not one from a message. Say it is fraud. Time matters, and they will say what they can and cannot do.
5. 05Report it to the authority in your country. That is usually the police or a national fraud-reporting service, and the financial regulator. A report helps others even where it does not help you.
6. 06Secure what was shared. Change passwords that were given out or reused, remove any remote-access software that was installed, and tell the provider of any account or card whose details were passed on.
7. 07Expect a second approach. People who have lost money are contacted again, by “recovery agents”, “lawyers” and “officials” who ask for a fee first. See the page on recovery-room fraud.
8. 08Tell someone you trust. These frauds are built by people who do it for a living, and they work on careful, intelligent people. Silence helps only the fraudster.

Nobody can promise that money lost to fraud will come back. Sometimes some of it does; often it does not. Anyone who guarantees a recovery, or asks to be paid first, is describing another fraud.

Regulators publish free warning lists and registers of authorised firms; this site lists several under Nice & Need: stay safe. To check an address that claims to be this site, use Verify a GIO4X link.

Is multi-level marketing the same as a pyramid scheme?

Not necessarily. The line that regulators generally draw is where the money comes from: mainly from selling real products to real customers, or mainly from payments by new recruits. The law differs from country to country, and a scheme can call itself one thing and be the other.

Can you make money if you join a pyramid scheme early?

A few at the top are paid, with the money of everyone below. That does not make it an investment: the payment is other members’ losses, and taking part or recruiting can be against the law.

Why do pyramid schemes run out of people so fast?

Because each level must be a multiple of the one before. If every member must recruit six, the thirteenth level alone needs more people than are alive. Long before that, a town or a community is used up.