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Pyramid Schemes

In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants. The hallmark of these schemes is the promise of sky-high returns in a short period of time. A pyramid scheme is closely related to a Ponzi scheme because they both involve paying longer-standing members with money from new participants, instead of actual profits from investing or selling products. Pyramid schemes collapse when the promoter cannot raise enough money from new investors to pay earlier investors.

Additional Information

Investor Alert: Beware of Pyramid Schemes Posing as Multi-Level Marketing Programs

 

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