Pyramid schemes are marketing and investment frauds in which an individual is offered an opportunity to market a particular product. However, profit is gained not by the sale of a product, but by the recruitment of others into the scheme.
How pyramid schemes work
Pyramid schemes work by offering individuals the opportunity to buy into a scheme associated with a particular product. This money goes to those above the individual in the pyramid.
Participants in the scheme can recoup their original investments and qualify for a pay-out by recruiting new members, who join the pyramid below them. In theory, the further up the pyramid a participant is, the more money they get.
However, the emphasis on recruiting participants rather than selling a product eventually leads to a point where the supply of potential investors is exhausted and the pyramid scheme collapses, leading to those at the bottom of the scheme losing out on their original investment and any subsequent investments.
Pyramid schemes are illegal
Under Section 65 of the Consumer Protection Act 2007, it is illegal in Ireland to establish, operate, promote or knowingly take part in a pyramid scheme. If convicted, an operator, promoter or participant in a pyramid scheme could be liable to a fine of up to €150,000 or up to five years’ imprisonment or both.