TedEd: How to spot a pyramid scheme

A TedEd by Stacie Bosley

In 2004, a start-up called Vemma Nutrition claimed to provide an easy way to earn lots of money for just part-time work. To be eligible, one simply had to buy a $500 nutrition kit and recruit 2 more people for the program. Vemma became a huge company, taking in more than 30,000 people per month at its highest point. The only problem was that most participants were actually losing money. Eventually, the company was charged with a pyramid scheme, which is a common type of fraud where each person gets a share of the money from each new member they recruit, with a part of the money eventually ending up with the founder. This differs from a Ponzi scheme in which the founder uses the money from new members to pay existing members. In a pyramid scheme, it gets increasingly harder for the newest members to make money. This is because the number of employees increases exponentially, because every person recruits the same amount of people. If each person had to recruit six more, then by the 12th round, 13 billion new people would have to be recruited, which is impossible as it is larger than the entire world population. Although this is banned in most countries, they can easily disguise themselves and be hard to spot. In particular, they may be presented as multi-level marketing companies, which are different because people make money from selling a product. Pyramid scheme companies hide by creating a product to make themselves look like multi-level marketing companies. Recruits are also encouraged to report good work experiences before being paid, so that their friends will do it, too. The victims of such schemes are often too embarrassed to speak out, thinking that it's their fault that they didn't work hard enough. There are ways to spot this, however. Time restrictions and huge sums of money are one thing, and a legit company shouldn't require payment to join.