A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud.

Pyramid schemes are illegal in many countries including Albania, Australia, Brazil, Bulgaria, Canada, China, Colombia, Denmark, the Dominican Republic, Estonia, France, Germany, Hungary, Iceland, Iran, Italy, Japan, Mexico, Nepal, The Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Romania, South Africa, Spain, Sri Lanka, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom, and the United States.

These types of schemes have existed for at least a century, some with variations to hide their true nature, and many people believe that multilevel marketing is also a pyramid scheme.

Concept and basic models

A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit. The essential idea is that a "con artist" Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the "business" expands.

Such "businesses" seldom involve sales of real products or services to which a monetary value might be easily attached. However, sometimes the "payment" itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. The flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the "pharaoh") and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Individuals at the bottom of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.

The "Eight-Ball" model

Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases. The scheme requires a person to recruit two others, who must each recruit two others, who must each recruit two others.

Prior instances of this scheme have been called the "Airplane Game" and the four tiers labelled as "captain," "co-pilot," "crew," and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labeled the tiers as "dessert," "main course," "side salad," and "appetizer." A person on the "dessert" course is the one at the top of the tree. Another variant, "Treasure Traders," variously used gemology terms such as "polishers," "stone cutters," etc. or gems like "rubies," "sapphires," "diamonds," etc.

Such schemes may try to downplay their pyramid nature by referring to themselves as "gifting circles" with money being "gifted." Popular schemes such as the "Women Empowering Women" do exactly this.

Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme - with the Airplane Game as the example, the person at the top of this tree is the "captain," the two below are "co-pilots," the four below are "crew," and the bottom eight joiners are the "passengers."

The eight passengers must each pay (or "gift") a sum (e.g. $1000) to join the scheme. This sum (e.g. $8000) goes to the captain who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they advance through the crew and co-pilot tiers and exit the scheme as a captain. Therefore, the participants in the bottom 3 tiers of the pyramid lose their money if the scheme collapses.

If a person is using this model as a scam, the confidence trickster would make the lion's share of the money. They would do this by filling in the first 3 tiers (with 1, 2, and 4 people) with phony names, ensuring they get the first 7 payouts, at 8 times the buy-in sum, without paying a single penny themselves. So if the buy-in were $1000, they would receive $8,000, paid for by the first 8 investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible to allow them to skim even more from it before it collapses.

Although the 'Captain' is the person at the top of the tree, having received the payment from the 8 paying passengers, once he or she leaves the scheme is able to re-enter the pyramid as a 'Passenger' and hopefully recruit enough to reach captain again, thereby earning a second payout.

Matrix schemes

Matrix schemes use the same fraudulent non-sustainable system as a pyramid; here, the participants pay to join a waiting list for a desirable product which only a fraction of them can ever receive. Since matrix schemes follow the same laws of geometric progression as pyramids, they are subsequently as doomed to collapse. Such schemes operate as a queue, where the person at head of the queue receives an item such as a television, games console, digital camcorder, etc. when a certain number of new people join the end of the queue. For example ten joiners may be required for the person at the front to receive their item and leave the queue. Each joiner is required to buy an expensive but potentially worthless item, such as an e-book, for their position in the queue. The scheme organizer profits because the income from joiners far exceeds the cost of sending out the item to the person at the front. Organizers can further profit by starting a scheme with a queue with ''shill'' names that must be cleared out before genuine people get to the front. The scheme collapses when no more people are willing to join the queue. Schemes may not reveal, or may attempt to exaggerate, a prospective joiner's queue position which essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis.

Connection to multi-level marketing

The network marketing or multi-level marketing business has become associated with pyramid schemes as "Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure." and the fact while some people call MLMs ''in general'' "pyramid selling" others use the term to denote an illegal pyramid scheme ''masquerading'' as an MLM.

The United States Federal Trade Commission (FTC) warns "Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products." and states that research is your best tool and gives eight steps to follow:

# Find — and study — the company’s track record. # Learn about the product # Ask questions # Understand any restrictions # Talk to other distributors (beware shills) # Consider using a friend or adviser as a neutral sounding board or for a gut check. # Take your time. # Think about whether this plan suits your talents and goals

Some believe MLMs in general are nothing more than ''legalized'' pyramid schemes.

One of Pearlasia Gamboa’s (president of the micronation of Melchizedek) franchise fraud schemes was described by the Italian newspaper ''La Repubblica'' as “one of the most diabolical international scams ever devised in recent years.”

Notable recent cases

Internet

In 2003, the United States Federal Trade Commission (FTC) disclosed what it called an internet-based "pyramid scam." Its complaint states that customers would pay a registration fee to join a program that called itself an "internet mall" and purchase a package of goods and services such as internet mail, and that the company offered "significant commissions" to consumers who purchased and resold the package. The FTC alleged that the company's program was instead and in reality a pyramid scheme that did not disclose that most consumers' money would be kept, and that it gave affiliates material that allowed them to scam others.

WinCapita was a scheme run by Finnish criminals that involved about €100 million.

Others

The 1997 rebellion in Albania was partially motivated by the collapse of pyramid schemes.

In early 2006, Ireland was hit by a wave of schemes with major activity in Cork and Galway. Participants were asked to contribute €20,000 each to a "Liberty" scheme which followed the classic eight-ball model. Payments were made in Munich, Germany to skirt Irish tax laws concerning gifts. Spin-off schemes called "Speedball" and "People in Profit" prompted a number of violent incidents and calls were made by politicians to tighten existing legislation. Ireland has launched a website to better educate consumers to pyramid schemes and other scams.

On 12 November 2008, riots broke out in the municipalities of Pasto, Tumaco, Popayan and Santander de Quilichao, Colombia after the collapse of several pyramid schemes. Thousands of victims had invested their money in pyramids that promised them extraordinary interest rates. The lack of regulation laws allowed those pyramids to grow excessively during several years. Finally, after the riots, the Colombian government was forced to declare the country in economical emergency to seize and stop those schemes. Several of the pyramid's managers were arrested, and these are being prosecuted for the crime of "illegal massive money reception."

The ''Kyiv Post'' reported on 26 November 2008 that American citizen Robert Fletcher (Robert T. Fletcher III; aka "Rob") was arrested by the SBU (Ukraine State Police) after being accused by Ukrainian investors of running a Ponzi scheme and associated pyramid scam netting US$20 million. (The ''Kiev Post'' also reports that some estimates are as high as US$150M.)

Throughout 2010 and 2011 a number of authorities around the world including the Australian Competition and Consumer Commission and the Bank of Namibia have declared TVI Express to be a pyramid scheme. TVI Express, operated by Tarun Trikha from India has apparently recruited hundreds of thousands of "investors", very few of whom, it is reported, have recouped any of their investment.

In popular culture

Many Facebook games operate on a pyramid scheme system where you are greatly hindered in the game play unless you recruit your friends and family to play the game too. The more people you recruit, the more likely you will be to be successful in the game.

Stanton, a character of Charles Maturin's famous novel ''Melmoth the Wanderer'', while put in Bedlam by his relative, finds a plan, written by some of his predecessors in the room he is placed. It is a plan of baptising all the population of Ottoman Empire, beginning with the Turkish ambassador, and is a classical pyramid scheme.

The feature film ''Children of Invention'' tells the story of a mother who gets entangled in a pyramid scheme.

The novel ''Welcome to the N.H.K.'' features a story arc wherein the main character is caught up in a crooked multi-level marketing scam called 'Mouse Road'.

On the NBC sitcom ''The Office'', it is revealed that Michael did not attend college because he lost all his tuition money in a pyramid scheme. At a later date, the same character unintentionally attempts to recruit members of his staff into selling calling cards, not realizing that he had been conned into a pyramid scheme until it is made clear by an employee.

In the episode "Soft Touch" of The King of Queens, Doug is tricked by his neighbor into a pyramid scheme that is disguised as a way to make money by selling water filters.

Season two of the Channel 4 sitcom Peep Show, features an episode in which Jeremy becomes involved in a pyramid scheme after being ignorantly drawn into it by his neighbor Toni, whom he's trying to sleep with.

In Series 7 of the UK children's TV school drama ''Grange Hill'' the ginger-haired schemer Pogo Patterson initially found success in selling "chain letters", a form of pyramid scheme. The scheme eventually collapsed due to a lack of market.

See also

Autosurf

Bernie Madoff

BurnLounge

Franchise fraud

Cobra Group (company)

High-yield investment program

Holiday Magic

Make Money Fast

Multi-level marketing

Claims of Social Security as a pyramid scheme

Success University

References

''The Fraudsters - How Con Artists Steal Your Money Chapter 9, Pyramids of Sand (ISBN 978-1-903582-82-4) by Eamon Dillon, published September 2008 by Merlin Publishing, Ireland

External links

U.S. Securities and Exchange Commission information about pyramid schemes

FTC consumer complaint form

IMF feature on "The Rise and Fall of Albania's Pyramid Schemes"

National Consumer Agency on Pyramid Schemes - Irish consumer site describes two local pyramid schemes and offers advice to would-be participants.

PyramidSim.com simulation, graphing and calculation of various pyramid schemes.

Australian Trade Practices Amendment Act (No. 1) 2002 Australian Law Online

Public Warning on Pyramid Schemes Central Bank of Sri Lanka

Category:Business models Category:Confidence tricks Category:Direct marketing Category:Promotion and marketing communications Category:Marketing

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Coordinates	37°46′45.48″N122°25′9.12″N
Name	Joe Heck
State	Nevada
District	3rd
Term start	January 3, 2011
Preceded	Dina Titus
State senate2	Nevada
State	Nevada
District2	Clark 5
Term2	2004–2008
Preceded2	Ann O'Connell
Succeeded2	Shirley Breeden
Birth date	October 30, 1961
Birth place	Jamaica, New York, U.S.
Party	Republican
Spouse	Lisa Heck; 3 children
Residence	Henderson, Nevada, U.S.
Profession	Osteopathic physician
Religion	Roman Catholic
website	heck.house.gov }}

Joseph John “Joe” Heck (born October 30, 1961) is the U.S. Representative for Nevada’s 3rd congressional district and is a member of the Republican Party. He is an osteopathic physician and former Nevada State Senator.

The district includes the cities of Henderson, Boulder City, parts of Las Vegas and North Las Vegas, unincorporated Clark County, and several smaller towns and cities in the Southern Nevada region. He resides in Henderson, Nevada.

Early life, education, and military service

Heck was born in Jamaica, New York in Queens and raised in Pennsylvania. In 1992, he moved to Clark County, Nevada. He graduated from Penn State University in 1984 with a degree in Health Education. He received his Doctor of Osteopathy in 1988 from the Philadelphia College of Osteopathic Medicine and obtained a residency in Emergency Medicine in 1992 at the Albert Einstein Medical Center. He earned a Masters of Strategic Studies degree from the U.S. Army War College in 2006.

Heck is a Colonel in the United States Army Reserve and commands a Medical Readiness Support Group overseeing more than 2,000 soldiers in 6 western states. He continues to serve in this capacity while in Congress. He has served in Operation Joint Endeavor, Operation Noble Eagle, and Operation Iraqi Freedom. His last deployment was January, 2008.

Medical Career

Heck was the president, owner, and medical director of Specialized Medical Operations until 2011. The company provided quality medical training, consulting, and operational support to law enforcement agencies, EMS, and military special operations. Heck has lectured and is published on special operations medical support, the medical response to acts of terrorism, and emergency preparedness and response.

From 1998 to 2003, Heck served as the medical director of the Casualty Care Research Center of the Uniformed Services University of the Health Sciences in Bethesda, Maryland, where he provided medical support for several federal law enforcement agencies and oversight for the medical response to acts of terrorism.

Heck started his medical career as a volunteer firefighter and ambulance attendant in rural Pennsylvania. He volunteered as a Medical Team Manager with the Nevada Urban Search & Rescue Team - Task Force 1 and as a member of the Las Vegas Metropolitan Police Department Search & Rescue team. He has also served as a tactical physician with the LVMPD SWAT team.

Heck served as a member of the Nevada State Homeland Security Commission Sub-committee on Health, the American Osteopathic Association's Task Force on Bioterrorism, and as the Medical Director for the Nevada Hospital Association’s Hospital Preparedness program. He also served as the Medical Director for the Southern Nevada Health District's Office of Public Health Preparedness.

Nevada Senate

Heck served one four-year term in the Nevada Senate, representing Clark County’s 5th district.

Elections

Heck was first elected to the Nevada Senate to represent Clark County’s 5th district in 2004, after defeating Senator Ann O’Connell in the Republican primary. Heck narrowly lost reelection to Democrat Shirley Breeden by a margin of 46.57% to 45.81% and a plurality of 765 votes. Libertarian T. Rex Hagan received 4754 votes (8.4%).

Committee assignments

He served on the Natural Resources, Human Resources and Education, the Commerce and Labor Committees. He was also the vice-chair of the Transportation and Homeland Security Committee.

U.S. House of Representatives

2010 election

_{See also Nevada gubernatorial election, 2010}

Although Heck had earlier announced he would challenge incumbent Republican Jim Gibbons for Governor, he decided against it in favor of a run for Nevada's 3rd congressional district. He won by a margin of 48.16% to 47.44% and a plurality of 1922 votes, defeating Democratic incumbent Dina Titus. Titus had only held the position for one term after she defeated incumbent Republican Jon C. Porter in 2008.

Tenure

Heck was one of three freshmen named to the House Republican Steering Committee in the 112th Congress. His top three legislative priorities are jobs and the economy, healthcare reform, and national security.

Committee assignments

Committee on Armed Services

*Subcommittee on Military Personnel

*Subcommittee on Readiness

Committee on Education and the Workforce

*Subcommittee on Higher Education and Workforce Training

*Subcommittee on Health, Employment, Labor, and Pensions

Permanent Select Committee on Intelligence

Partisan committees:

House Republican Steering Committee

Source:

Personal life

Joe and his wife, Lisa (formerly Matiello), have three children: Monica, Chelsea and Joseph III. Lisa is a registered nurse. Heck is a Roman Catholic. He is active with the Knights of Columbus Council 13456 and Catholic War Veterans Post 1947.

References

External links

Congressman Joe Heck ''official U.S. House site''

Joe Heck for Congress ''official campaign website''

Senator Joe Heck ''official Nevada Legislature site'' (2007 session)

Category:1961 births Category:Living people Category:Members of the Nevada Assembly Category:Members of the United States House of Representatives from Nevada Category:Nevada State Senators Category:Nevada Republicans Category:New York City politicians Category:Osteopathic physicians Category:Pennsylvania State University alumni Category:People from Henderson, Nevada Category:People from Jamaica, Queens Category:United States Army War College alumni Category:United States Army officers Category:United States Army reservists Category:American military personnel of the Iraq War