What is it?

A form of fraud that promises participants payment or services for recruiting others into what is presented as a legitimate business. It is based on recruiting people rather than selling products.

A successful pyramid scheme combines a fake, but seemingly credible, business with a simple money-making formula that only benefits the originator.

How it works

The fraudster or originator of the scheme makes only one payment. To start earning, others need to be recruited who will also make a payment. The new participants recruit others, and so on. As each new recruit makes a payment, the originator gets a cut.

As the “business” expands, the originator and participants at the top of the pyramid make more money. The people at the bottom of the pyramid usually lose money. To enhance credibility, the schemes usually produce fake referrals, testimonials and information.

How to avoid being a victim

• Be wary of any proposed opportunities that ask you to invest your money and pursue other investors.

• Research the business or person before investing.