Pyramid Scheme

Definition - What does Pyramid Scheme mean?

A pyramid scheme is a scam in which a person or a group of people attempt to generate a profit by convincing others to give them money, which will supposedly be used as an investment. Returns are promised to the investors in exchange, but instead of investing all of the money, the scammers keep a large portion of it.

Justipedia explains Pyramid Scheme

Pyramid schemes can survive for some time if the scammers continue getting more people to give them money. This way, they can pay off the earlier investors to make the scheme seem legitimate. However, pyramid schemes typically fail after a while because the scammers cannot give the promised returns to everyone. So eventually, the scheme collapses and people realize that they have been defrauded.

Pyramid schemes are illegal; they are a form of fraud, and people who attempt them can face punitive consequences.

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