What is "pyramid scheme"

Pyramid \Pyr"a*mid\, n. [L. pyramis, -idis, fr. Gr. ?, ?, of Egyptian origin: cf. F. pyramide.]

1. A solid body standing on a triangular, square, or polygonal base, and terminating in a point at the top; especially, a structure or edifice of this shape.

2. (Geom.) A solid figure contained by a plane rectilineal figure as base and several triangles which have a common vertex and whose bases are sides of the base.

3. pl. (Billiards) The game of pool in which the balls are placed in the form of a triangle at spot. [Eng.]

4. (Finance) a fraudulent investment scheme in which the manager promises high profits, but instead of investing the money in a genuine profit-making activity, uses the money from later investors to pay the profits to earlier investors; -- also called pyramid scheme or pyramid operation. This process inevitably collapses when insufficient new investors are available, leaving the later investors with total or near-total losses of their investments. The managers usually blame government regulations or interference for the collapse of the scheme, rather than admit fraud.

   Altitude of a pyramid (Geom.), the perpendicular distance from the vertex to the plane of the base.

   Axis of a pyramid (Geom.), a straight line drawn from the vertex to the center of the base.

   Earth pyramid. (Geol.) See Earth pillars, under Earth.

   Right pyramid (Geom.) a pyramid whose axis is perpendicular to the base.

n. An illicit money-making investment scheme whereby early investors are paid primarily or wholly by later investors. Eventually all such schemes fail to the detriment of recent (later) investors.

n. a fraudulent scheme in which people are recruited to make payments to the person who recruited them while expecting to receive payments from the persons they recruit; when the number of new recruits fails to sustain the hierarchical payment structure the scheme collapses with most of the participants losing the money they put in

A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.

Pyramid schemes have existed for at least a century in different guises. Some multilevel marketing plans have been classified as pyramid schemes.