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Pyramid Schemes
adapted from an article by Fugi Saito
"Last one in is a rotten egg!"
The most significant error that people make... They assume that the form (a pyramid) is also the function (scheme, selling scheme, or selling). When we use the pyramid to describe the form that an organization takes, we are referring to the most dominant organizational structure in the world.
This hierarchical arrangement is common to the Military, and the Mafia, the Catholic Church, and the Cocaine Cartels, the government and... virtually every business. It's not how they look that makes them illegal or legal, it's what they do. It's not the form, it's the function!
A Pyramid Scheme is not bad because it's a "pyramid," but because it's a SCHEME!
OK, what makes it a scheme? First off, these kinds of schemes (pyramid schemes) are different than selling schemes. (i.e. If there is a product it can still be illegal.)
The general scenario is this - you pay a little and you can get a lot. Pretty simple, eh? If this sounds just like your local lottery YOU WIN!
Well, maybe you don't win, but you do have a great insight into this idea. In most places pyramid schemes are governed by the section of the Criminal Code that has to do with lotteries.
Pyramid Schemes are simply illegal lotteries.
There is money involved, but no goods or services are exchanged for that money. What you pay for is a chance. Let me explain why they are illegal by using the analogy of a lottery.
In a lottery you pay a little and get the CHANCE to win a lot. Notice the capitalization of the word CHANCE. What if you found out that the ONLY people who win all the time are those who have the numbers 6, 12, 24 and 36. Right away you would know that the "game" was "fixed" and therefore "unfair."
We recognize only two types of "games" in a lottery. Those are games of chance and games of skill, and based on either of these qualifiers a winner is determined. Well, in a Pyramid Scheme chance and skill have nothing to do with the payout. How much you will make is strictly determined by your position. This means that those on the bottom are at a disadvantage to those on the bottom. Those on the top will always win and those on the bottom will always lose. This makes the lottery (or game) unfair, and thus illegal.
Chain letters are a good example of a Pyramid Scheme since most of them do not have a "real world" product or service and those on the bottom will always lose. Other sources of information on Pyramid Schemes can be found at:
- The US Postal Service operates an excellent site with information on Pyramid Schemes, Chain Letters etc.
- The Federal Trade Commission (FTC) is also a good place to go and research.
- The Better Business Bureau also has information.
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