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Marketing Definitions: What is a Pyramid Scheme?

Pyramid Schemes Are Illegal in the United States


Definition: A pyramid scheme is an illegal type of multi-level marketing program in which people pay an entrance fee for the opportunity to recruit others to do the same. Pyramid schemes usually have no products or ability to sustain the business.

Pyramid schemes are illegal in the United States, Canada, Mexico, Colombia, Portugal, South Africa, United Kingdom, France, Germany, Norway, Switzerland, Italy, Albania, Romania, Poland, Hungary, Bulgaria, Australia, New Zealand, Iceland, Netherlands, Philippines, Malaysia, Sri Lanka, Thailand, Iran, Japan, the People's Republic of China, and Nepal.

An example of a pyramid scheme is the chain letter scheme involving sending money to the person who sent you the chain letter, then you forwarding the same letter to a number of other people asking them to give you money and then forward the letter on to others.

Also Known As: Often incorrectly referred to as multi-level marketing which is only one form of networking marketing.

Related Terms:

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