I know the term but I’ve never actually been able to understand what it is and what happens in one
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Pyramid schemes involve a “business” opportunity that relies on drawing in new investors.
Basically, I have a business opportunity for you. You give me $100 to get in. I tell you that to make money you have to get 10 people to buy in. They give you $100 each, you give me $80 from the $100 you get from each person. I make $900, you make $100. You tell them the same thing. They each find someone to buy in. Those people keep $10 of the $100, you keep a share, then pass me my share.
The bulk of the money keeps getting funneled up. The early levels can make massive amounts of money, but the later you get in on the scheme the more likely you are to end up holding nothing. The “business” isn’t really producing anything or offering a legitimate service. It’s just taking money from new “investors” and funneling it up the higher levels.
Multi-level marketing is a type of pyramid scheme, but it gets around the law by having an actual product that sold. It just requires new “investors” to buy the product they intend to sell instead of buying a share of the company.
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