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10 Scandalous Pyramid Schemes
Pyramid schemes are a shady business model if you can even classify them as businesses.
The pyramid scheme business model makes money from recruiting new people into its scheme on an ongoing basis. It’s not about marketing a product. It’s all about dishonest con artists marketing get-rich schemes to unsuspecting individuals, who, if they can be psyched up enough, will be ready and willing to hand over their hard-earned dollars.
The money each recruit hands over is known as an “entrance fee” and is paid to the people above them. So as long as these people keep recruiting new so-called investors, the pyramid scheme stays afloat. But once the number of new recruits starts dwindling, the whole thing collapses. The lower down you sit on the pyramid, the more likely you will lose the money you spent to buy into the pyramid scheme in the first place.
Here are ten scandalous pyramid schemes you may or may not have heard about.
10 Vemma – Energy and Weight Loss Drinks
Vemma was allegedly running a pyramid scheme when the Federal Trade Commission (FTC) revealed that the company was offering higher payouts for bringing in recruits than they were paying out for commissions for the sale of their products. Most of the recruits were college-aged students or people in that age group who were promised they’d make big money.
To start with Vemma, recruits had to buy a $600 starter kit and pay hundreds of dollars more each month for the latest product offers. Sadly, many recruits lost all their money. The reality is that most of Vemma’s distributors (recruits) earned around $6,000 or less per year.
9 BurnLounge, Inc. – Selling Songs
Although similar to streaming sites like MySpace and PureVolume who didn’t charge a subscription to sell music, BurnLounge required people to buy a subscription.
Thirty thousand people were offered the opportunity to open up their storefront to sell their songs on the BurnLounge website. Besides being required by BurnLounge to buy a subscription, these new digital storefront owners had to also recruit new members.
To make matters worse, if these storefront owners sold some of their music, BurnLounge paid them in points that they could use to purchase only BurnLounge products. If you wanted money instead of points, you were charged a fee.
8 Business in Motion – Selling Vacation Club Packages
The Business in Motion pyramid scheme was compliments of Alex Klippax, who showed up in Canada offering the good folks a seemingly seamless way to make $100,000 a year selling cheap vacation club packages.
To be granted the right to do so, all an individual had to do was buy into the club for $3,200. In return, they’d receive a $5,000 commission on every vacation package they sold, just like the one they’d purchased. Klippax’s fate was sealed when investigators started asking how he could pay out commissions that were higher than the actual cost of the product being sold.
Long story short, 2,000 people were fooled by this scheme!
7 Susu – The Blessing Circle
Susu, also known as sou-sou, is a Caribbean concept that promoters in Maryland were basing their pyramid scheme on. Traditionally sou-sou is used as a way to help small businesses grow. The modern-day version of susu is that you have to buy in at a fixed amount, say $400, and you must recruit two other people to pay the same amount.
Supposedly, it’s a common fund that each recruit can receive a payout from based on an agreed-upon schedule by all group members. The only snag in the scheme is that fresh recruits have to constantly buy in, so there is money for the payouts. It’s simply unsustainable, but the promoters somehow forget to tell recruits the downside of this pyramid scheme.
6 Chain Letters – Online Scam
The chain letters scam is promoted through emails or on social media sites. Recruits must buy into the game for $100, promising that they’ll eventually receive an $800 payout. You’re encouraged to share the good fortune by enlisting recruits, most likely from your family or circle of friends.
This is how it works. You receive an invitation to send $100 via a digital payment processor like PayPal. You send the money to the person’s name listed in the middle of an illustrated playing board in the shape of an octagon.
There are eight spots on the playing board, and your $100 buy-in buys you one of eight spots on the board. As more people are recruited and buy-in, the board changes, and your name moves closer to the board’s center. Once your name reaches the center circle, you receive eight $100 payments from the recruits who have come on board. Note that zero products are being sold, just new people being recruited.
When no new recruits are paying in money, this pyramid scheme literally falls apart. If your name hasn’t reached the center circle before this happens, you and everyone else lose their $100 buy-in money.
5 The Circle of Gold – Parties
The Circle of Gold pyramid scheme increased in popularity back in the late 1970s. It was the pyramid scheme of choice for the well-heeled middle and upper-middle class, such as lawyers and doctors who held a certain reverence for the scheme. By the way, they didn’t see it as a pyramid scheme but rather something spiritual in nature.
The Circle of Gold was promoted at parties attended by friends and family. And supposedly, the seller had an unspoken duty to sell the scheme to only people who could afford it and or afford to lose their initial investment money.
Here is how it worked. An interested person was sold a list comprised of 12 names for $100, plus had to bring in two recruits who would then pay $100 each and recruit two people each. So on, and so forth. When the person recruits their two people, they each give the recruiter $100.
The person who did the recruiting keeps $50 from each person and gives the other $50 from each recruit to the name at the top of the list they purchased. It’s either handed directly to the person or mailed to the person. The new recruit adds their name to the bottom of the list. This gets repeated with a person’s name slowly being moved toward the top of the list.
It’s interesting to note that in pyramid schemes, the scheme produces nothing of worth because, for every dollar that moves from one person to the next, there is always a person (or persons) who has received none of the money but has given money to the scheme.
4 The Airplane Game – Everyone Wants To Be the Pilot
This pyramid scheme was also known as the Plane Game, the Concorde, and the Golden Galaxy. It started in North America in the 1980s but spread to Western Europe.
This is how it worked. People were recruited to join an airplane by giving $1,500 of their money to the plane’s pilot. In the top spot, the person’s name was the currently designated pilot and received the buy-in money from the new recruits.
The new recruit would then become one of eight passengers. Being a passenger was the fourth step below the position of pilot. Above the passenger level were four flight attendant positions, and above them were two co-pilots, and finally, the pilot held the top position. Once the pilot collected a total of $12,000, that person was retired. Also, the plane split into two planes. At this point, each co-pilot moved into the pilot position. Each pilot took half of the group from the original plane, and everyone moved up one level.
This process was repeated over and over, providing new recruits were constantly being brought in. The more recruits brought in, the faster everyone moved up. The bottom line with this pyramid scheme came down to this: Unless fourteen new recruits were bought in after you, you would lose the money you spent to buy in.
This pyramid game started in New York then spread to South Florida, California, and Texas. It became so prolific that police started raiding meetings. It was reported that one recruiting gathering attracted 1,000 interested people. As the popularity of this pyramid scheme grew, some buy-ins to a plane ran $5,000, with pilots receiving $40,000 before being retired. The “plane game” increased so fast in Spain that the government stepped in and shut them all down.
3 Mary Kay – Beauty Products
Many have wondered if Mary Kay, a company that sells cosmetics and other beauty products, is a pyramid scheme. Apparently, due to cautious wording in the description of their business model, they’ve gotten away with running a pyramid scheme for years.
Although the company does not mandate that their salespeople buy Mary Kay products, it turns out that most of the company’s profits come from their salespeople’s purchases! How the company has continued to get away with running this scheme most likely comes down to hiring smart lawyers.
2 Wealth Pools International – DVD Sales
Wealth Pools presented itself as an international marketer of English and Spanish language DVDs. People were recruited to purchase the DVDs so they could turn around and resell them at a profit. It’s estimated that 70,000 people spread over 64 countries bought DVDs to resell.
When the Securities and Exchange Commission (SEC) investigated the company, they found that most of Wealth Pools’ profits came from the recruits purchasing the DVDs. As a result, the SEC froze Wealth Pools’ profits. In 2007 it’s estimated that the recruits handed over $132 million of their own money.
1 Elite Activity – A Pyramid Scheme Inspired by God
Harvey Dockstader Jr was found guilty of running a pyramid scheme by the name of Elite Activity. People were recruited to participate in what Dockstader called a “cycle of abundance.” Recruits had to gift money to Elite Activity and were promised they’d receive sizeable profits in return—provided they brought in more new recruits. People who participated in the scheme were told that it was God who inspired it.
Well, if God inspired it, then indeed it was legal and on the up and up, right? A Texas federal appeals court didn’t agree. Dockstader was sent off to prison for two years.