15 financial scams you should know

5) pyramid scheme

In a pyramid scheme, an organization compels individuals who wish to join to make a payment. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit. The directors of the organization (those at the top of the pyramid) also receive a share of these payments.

For the directors, the scheme is potentially lucrative—whether or not they do any work, the organization’s membership has a strong incentive to continue recruiting and funneling money to the top of the pyramid.

Such organizations seldom involve the sales of products or services with value. Without creating any goods or services, the only revenue streams for the scheme are recruiting more members or soliciting more money from current members.