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pyramid scheme

PIR-uh-mid SKEEM /ˈpɪrəmɪd skiːm/

noun phraseC1GRE

formalbusiness

A fraudulent investment scheme in which participants profit primarily by recruiting new participants, rather than from the sale of products or services.

Pyramid schemes are inherently unsustainable because they rely on an ever-expanding base of new recruits. They often masquerade as multi-level marketing (MLM) but lack genuine product sales, focusing solely on recruitment fees.

The story behind the word. The term 'pyramid scheme' vividly describes the structure of this fraudulent operation: a small number of people at the top profit from a larger base of recruits below them, who in turn need to recruit even more people to make money. The 'scheme' part comes from the Old French 'eschime,' meaning 'plan' or 'plot.' The concept gained notoriety in the 20th century as these unsustainable models became more prevalent.

Word relationships

legitimate business model: A business that generates revenue from genuine sales of goods or services.

Commonly confused with

Ponzi scheme: A 'pyramid scheme' relies on recruiting new members who pay fees, with profits coming from these fees. A 'Ponzi scheme' relies on attracting new investors whose money is used to pay earlier investors, often without any actual product or service.

Collocations

run a pyramid scheme
illegal pyramid scheme
fall for a pyramid scheme

Example sentences

"The company promised huge returns, but it was quickly exposed as a classic pyramid scheme, collapsing when new recruits dried up." Warning about deceptive business models.
"Authorities issued a warning against participating in any venture that resembles a pyramid scheme, emphasizing the high risk of financial loss." Discussing financial regulations.

Memory hook

Imagine a PYRAMID built of people, where only those at the top can stand, and the base constantly needs to expand to support them. People pyramid

When not to use

Do not confuse with legitimate multi-level marketing (MLM) companies that genuinely sell products and derive most income from sales, not just recruitment.

Fun facts

Pyramid schemes are illegal in many countries because they are inherently unsustainable and almost always lead to financial losses for the vast majority of participants.

Related words

Ponzi scheme, fraud

Explore more words

Bubble, investment, counterfeit, unsustainable, Boom, recruit