A pyramid scheme is an illegal business structure where participants pay to join, and need to recruit others into the scheme in order to earn back their initial joining fee or make any profits.
Pyramids schemes are similar to multi-level marketing schemes. However, multi-level marketing schemes can be genuine and legal when participants earn money through selling actual goods or services, rather than by recruiting new members.
Typically, a pyramid scheme involves:
- new participants paying a joining fee to the scheme's promoter
- new participants being induced to pay the joining fee by the prospect of earning a 'recruitment payment' when they introduce new members into the scheme (and consequently grow the scheme).
Pyramid schemes don't produce or sell real goods or services (although they generally claim to) and most ultimately collapse causing financial loss to the people who most recently joined.
The ACL prohibits anyone from participating in a pyramid scheme, or inducing, or attempting to induce, others to do so.