Pyramid schemes are illegal in the United States. They’re considered a type of fraud. Essentially, someone running a pyramid scheme is tricking others who are involved in the scheme into giving them money, with the promise of massive returns in the future. But those returns are never going to happen.
These schemes are sometimes a bit complicated, and there can be confusion over exactly what qualifies. So let’s take a look at what creates a pyramid scheme and why it is illegal.
The system relies on endless layers
The basic setup just creates different layers of investors. At the top, you have people who have been told they’re going to get a major payout. They invest money, and some of them are then paid out by money brought in from investors below them.
Additionally, the next investors have to pay fees to join the scheme, thinking of it as nothing but a good investment opportunity. But the problem is that all these fees and earnings are just being used to pay off those at the top. Eventually, when there are no longer any investors at the bottom, the whole thing falls apart.
As a result, pyramid schemes usually center around the idea that those within the scheme need to recruit others to join below them. It is this recruiting process that continues to bring money into the scheme, making it profitable for those at the top. But as soon as this ends, the entire scheme is going to fall apart because it’s not actually making any money.
What options do you have?
If you’ve been accused of any type of financial fraud, such as running a pyramid scheme, the ramifications can be very serious. Be sure you know what legal options you have.