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Pyramid Scheme

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Definition:

A pyramid scheme is a fraud based on recruiting an increasing number of investors.

Typically, new recruits pay a sum of money to join the "program" and become a distributor of a product or service, and are told that they'll make money based on the number of new recruits they in turn bring in. The basic idea is that the higher up on the pyramid you are, the more money you'll make.

In reality, what happens is that only the originators of the pyramid scheme make money and the rest lose theirs when the pyramid scheme collapses. Eventually ALL pyramid schemes collapse, as the recruiters on the lower levels fail to bring in enough new participants to support those above them.

Pyramid schemes are illegal in Canada. Pyramid schemes are regulated by the Competition Act and the Criminal Code of Canada. "Any person who participates in these schemes in any capacity may be committing an offence and could be prosecuted" (RCMP).

People who are convicted of contravening the multi level marketing or pyramid selling provisions of the Competition Act can be convicted and sentenced to a fine at the discretion of the court or a prison term of up to five years, or both.

Also Known As: Sometimes confused with MLM (Multi Level Marketing) or Network Marketing.
Common Misspellings: Piramyd scheme; peramid scheme.
Examples:
Jason was really excited about becoming a distributor for QVQVX but unfortunately it turned out to be a pyramid scheme, not a legitimate business opportunity.

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