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What is Pyramid Scheme?

Yassinebouaida@bbs profile image
Yassinebouaida
Apr 16, 2022 9:27 PM
Pyramid Scheme is an investment scheme in which participants make the profit by recruiting other members under them and each participant has to recruit new participants where each new entrant has to pay the entrance fees for entering into the scheme and this makes the hierarchy of the persons.  How Does Pyramid Schemes Work? Some top-level persons start the scheme by depositing entrance fees they are responsible for recruiting new members each member has to pay the entrance fees and the top-level persons will get some percentage of entrance fees of the number of members appointed by it. This way each member recruits other new members and shares what they get by recruiting new members is profit from investing in the scheme. There are two options at the end either each person gets the full or partial investment amount back or scheme will collapse and investors suffer loss. In this scheme, money is sometimes used for purchasing the products and appoint new members to sell the product by offering them a percentage of profit and it can also be used for the benefit of members like giving the loan to members, purchasing property by members, and giving it on rent, etc. Example of Pyramid Scheme Mr. X’s top-level person decided to start to collect money by a pyramid scheme. He approached some of his contacts to enter into the scheme by paying membership fees of $ 100 and in return they get the free food coupons of his hotel and also he ask them to approach other persons to enter into the scheme by paying entrance fees and they get 10% of entrance fees as commission so he gave each of three to get 10 new entrants so the new entries become 10 * 10 * 3 = 300 persons. And these 300 persons have to appoint 10 people each total member become 300 * 10 = 3,000 members and he got the collection as 3000 * 100 = $300,000 And he distributed free coupons of $. 50 to each member and percentage of entrance fees 3000 * 100 * 10% = $30,000 so in all Mr. X earned $ 120,000 (300,000 – 150,000 – 30,000) as profit.Pyramid Scheme is an investment scheme in which participants make the profit by recruiting other members under them and each participant has to recruit new participants where each new entrant has to pay the entrance fees for entering into the scheme and this makes the hierarchy of the persons.  How Does Pyramid Schemes Work? Some top-level persons start the scheme by depositing entrance fees they are responsible for recruiting new members each member has to pay the entrance fees and the top-level persons will get some percentage of entrance fees of the number of members appointed by it. This way each member recruits other new members and shares what they get by recruiting new members is profit from investing in the scheme. There are two options at the end either each person gets the full or partial investment amount back or scheme will collapse and investors suffer loss. In this scheme, money is sometimes used for purchasing the products and appoint new members to sell the product by offering them a percentage of profit and it can also be used for the benefit of members like giving the loan to members, purchasing property by members, and giving it on rent, etc. Example of Pyramid Scheme Mr. X’s top-level person decided to start to collect money by a pyramid scheme. He approached some of his contacts to enter into the scheme by paying membership fees of $ 100 and in return they get the free food coupons of his hotel and also he ask them to approach other persons to enter into the scheme by paying entrance fees and they get 10% of entrance fees as commission so he gave each of three to get 10 new entrants so the new entries become 10 * 10 * 3 = 300 persons. And these 300 persons have to appoint 10 people each total member become 300 * 10 = 3,000 members and he got the collection as 3000 * 100 = $300,000 And he distributed free coupons of $. 50 to each member and percentage of entrance fees 3000 * 100 * 10% = $30,000 so in all Mr. X earned $ 120,000 (300,000 – 150,000 – 30,000) as profit.
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