A pyramid scheme is an unlawful investment plan based on network marketing’s hierarchical structure. The Ponzi scheme is arguably the most well-known type of pyramid scam.
The base of the pyramid is made up of new recruits who give financing, or so-called returns, in the form of new money outlays to the previous investors/recruits in the plan. Typically, a pyramid scam does not include the sale of goods.
Rather, it is based on a steady input of capital from new investors, which works its way to the top of the pyramid. This means that multilevel marketing strategies are not always dishonest and are not categorized as pyramid schemes.