Why are pyramid or ponzi schemes Illegal?

today we're going to talk about a

pyramid scheme and why they're illegal

if you look at the picture here you will

see that it looks the same as a 2 by 5

MLM matrix and in fact a lot of people

are confused about the difference

between a Ponzi scheme and an MLM MLMs

are legal and Ponzi schemes are illegal

but this graphic presentation can be

used to demonstrate both things so

what's the difference the difference is

that people in an MLM program because

you hear about you know people saying oh

the people at the top make all the money

well if this was an MLM program this

person at the top would build his

organization built his network which is

the same thing that's done in any kind

of formal traditional non MLM business

he would build his network let's say

that this person here is the very first

person in the company so he's not

getting any spillover or help from above

he's the first guy because the other

stuff is really irrelevant to this

conversation mm-hmm so he brings in two

people and then though this each person

brings in two people or he brings in

more than two people and when he brings

if he has two people and he brings in

three well the third person has to go

under one of those two people in this

particular kind of compensation plan MLM

companies have many types of

compensation plans MLM is over 200 years


the oldest one is still in business and

is still legal and that company is Avon

so so in this particular scenario if

Avon were for example using a two by

five matrix then he could only put two

on his first level and then the third or

fourth would have

go under those people and that's what's

called spillover spillover is what

happens when you get people placed

underneath you that you didn't bring in

so as he's building this and his people

are building it and his people are

building it and his people are building


his organization becomes bigger and

bigger and bigger and he makes more and

more money it's perfectly fair that he

at the top of his own organization makes

more money than the other people in his

organization now it is possible that

people within his organization under MLM

actually make more money than him

because their personal organization is

bigger so that's how MLM works and

that's how business works for example if

you're a realtor and you're selling

houses and you decide you know what I'm

just making money off of the houses I

sell I want to make more money so I'm

going to become a broker and I'm gonna

hire two Realtors now whenever they make

a sale I get a percentage of their sale

I get the broker fee because Realtors

must work under a broker in the United

States for example it's typically the

broker gets 3% and the realtor gets 3%

so he can then as he makes more money he

can bring in more Realtors as his

company gets bigger he could expand from

there he could you know make partnership

deals with other brokers and form a big

advertising I'm a real estate consortium

but it's essentially the same type of

thing and it's the same in corporations

for example let's take a car company for

example you've got the CEO it at the top

and at the bottom you have the car sales

people this car sales people are the

ones that are

actually making all the money for the

company they're the ones that sell it

but under each above each salesperson is

a sales manager and above that is a

general manager and that keeps going up

the line while it's the people at the

bottom the salespeople that are

generating all the revenue the people at

the top make money as well and it's not

that they make for example none of these

people make more than the car sales

person works makes but because they have

more people it ends up being more so all

business can be described through this

all sort of corporations and that that

type of thing mom-and-pop businesses

don't generally work like this at least

not in the beginning so but the reason

but this looks like a pyramid right so

people assume MLM when they see this MLM

as a pyramid scheme but MLM doesn't have

to you I mean but pyramid schemes don't

have to use this model that's not what

makes it a a pyramid scheme it could

have you know an unlimited number of

people that go directly under this

person and it could be just one level

where he doesn't get anything for the

people and it could still be a pyramid

scheme but the reason that they use this

example because it shows how all of them

regardless of what structure they use

will fall apart and break down so this

this recording refers to hyi P's a large

majority of revenue share programs that

sort of thing and while I'm going to use

an example that pays out more money I'm

I'm not going to use a smaller number

because the number doesn't matter for

this demonstration and if I use a

smaller number of

smaller percentage it will be harder for

most people to understand so while I'm

going to say okay that the the the rev

share or the the particular Hyp or

whatever pays out two hundred percent

which is much higher than most of them


it still works out the same if I use

decimal points you're going to it's

going to lose most people so I'm not

going to do that so in this scenario and

like I said it will be the same for

every single scenario it's just easy to

understand this way so this guy right

here pays $100 for a product he doesn't

need nor want he's paying the money

simply because he wants to make money

whereas if we compare it to an MLM

business like Avon people buy a bond

because they like Avon they don't buy

Avon because they want to make money

even the people who are in the business

side of it people in the business side

sell the product to people who want the

product they like the product and they

buy it regardless of whether or not they

make money most of the people that buy

Avon makes zero dollars ever because

they're not in the business okay but in

the h1 in a pyramid scheme everyone buys

the product whether they want it or not

that is in fact in case sometimes there

isn't a product and so you know Ponzi

schemes were outlawed and so people

started coming up with products to make

their their Ponzi scheme legal so but

it's still you'll still hear about MLM

companies getting busted for being a

Ponzi scheme because some of them still

are the government's not stupid and if

you're selling a

product that costs anybody anywhere $10

that anybody can get that product

anywhere for $10 and you're selling it

for a hundred that's a pyramid scheme so

you know there there was a big one many

years ago where they printed up posters

of art and they were selling them for

like $200 and they got shut down by the

government because a posters not worth


they weren't autographed or initialed by

the artist or anything like that like

like some of those types of things so a

lot of people think that they can

outsmart the government and do that now

one of the reasons that Ponzi schemes go

for so long and run so long is because

there are so many of them that there's

not a single government in the world

that can stop them all they literally

get tens of thousands of complaints a

day and it is not possible for any

government to do anything about that so

what they do is they deal with the ones

where people have complaints and the

interesting thing is they'll only deal

with it as long as people continue to

complain so I'll take a big one from the

past and that's Zeek Rewards a

relatively recent one he's on trial

right now and that went for a very long

time because no one was complaining and

when they started to run out of money

like I'm about to describe to you

instead of not paying the people who

were getting money off of it they

stopped paying because it was a it was a

penny auction so people would pay for an

opportunity to share in the revenue they

were the revenue was simply all coming

from people buying because they wanted

to make money now they had the the

auction and what ended up happening when

they didn't have enough money because

because the Ponzi scheme started to


they started not giving

people who won the auctions their

products and it was those people who

complained and they kept complaining and

kept complaining until the government

came in and did what they did I have

seen instances where the government was

investigating a particular individual or

an individual company and they were

doing it because they got lots of

complaints but then the people stopped

complaining and even though they have

tons of evidence everything that they

could to convict the guy when the people

stopped complaining they stopped doing

anything about it they stopped taking

any kind of action so it just went on

the back burner and this person is a

serial scammer so they continue to do

this in every couple years he takes

millions of dollars from people and

again people complain and then they open

the investigation again and then people

stop and then it goes goes back on the

back burner so why is this the case

again too many too many scams out there

for them to do anything about it and

another reason is because it's all about

votes it's all about politics and it's

all about boats when people are

complaining politicians are complaining

and they're demanding action be done as

long as people are complaining to them

but once people stop complaining the

politicians stop saying do something

about it that the agency stopped getting

pressure from the people and then they

just go on to something where they're

getting pressure from the people so

that's one of the big reasons why you

see serial scamming often times though

they'll shut these down before they ever

even get caught it it was you know had

Zeek Rewards not had had its auction and

just you know did some kind

advertising type thing they wouldn't

have gotten complaints until the Ponzi

scheme collapsed so we're going to talk

about why it's a mathematical certainty

that the Ponzi scheme will always

collapse there's no way you hear all

these people talking about how you know

this and this and this and this and this

won't collapse because of this and this

won't collapse because of this we're

putting people in at the bottom we're

using part of the money to put them in

at the bottom all of this type of thing

it doesn't change anything it is

mathematically certain it is guaranteed

it's just a matter of time and I'm going

to explain to you how that happens so

here we have John and John has paid $100

and John has been told in 60 days he's

going to get $200 okay so one of the key

things in a Ponzi scheme is there is a

time frame of return okay no business in

history knows how much profits they're

going to make so when someone tells you

I'm going to share profits with you and

I'm going to pay you at any time frame

you know right then and there that

that's a Ponzi scheme because no one

knows the future not even Google none of

no company knows how much revenue it's

going to do in in the future so but how

do they do that how do they pay for the

time that they do before they collapse

well this is how they do it so I've got

John right here and I'm gonna pay him in

60 days I'm gonna pay him 200 dollars

now let's assume that there's no fees

for the payment processor which we know

is not true and the company has decided

not to make any profit at all so 100

percent of the money that John has paid

and that everybody has paid is being

paid back out now it's ridiculous to

assume that

it's never the case but again I'm trying

to make this easy to understand and say

give you the very very best case

scenario so you can't get any better

than this you know what I mean just a

hundred percent no bank fees no payment

processor fees the company paying for

everything themselves out of their

pocket and not keeping a dime of the

money that comes in okay doesn't exist

but for this scenario you will see that

even if that was the case it wouldn't

work so John pay is a hundred dollars

and he's told by the company that in 60

days or what the time frame also does

not matter because the the pyramid will

still collapse

now the reason like I said it's a

pyramid even though it isn't a matrix is

because in order for me to pay John his

hundred dollars I need to get a hundred

dollars from two more people that's how

it forms a pyramid so it doesn't matter

if it's a line or what it is it doesn't

matter because it did the shape of it

doesn't matter what matters is what you

have to do to pay John okay what do you

have to do to pay John now it if it was

if he was going to get $300 then we'd

have to add a third person here and see

how there's two legs one under this

person who wanted of this person if it

was $300 that'd be a third leg if it was

$400 there would be a fifth leg okay but

regardless it's always going to form the

shape in the way that it that it pays

out so in order to pay John I need a

hundred dollars from this person and a

hundred dollars in for this person in 60

days I've got to do that in 60 days okay

now now I have to pay these two people

in 60 days so I have these two people

okay so now within 60 days I have to

have have in 60 more days I've got to

get four okay

in 60 more days I got to get eight now

in the beginning this is easy it's not a

lot of people but as the pyramid starts

to get wider and wider it becomes

impossible you can't predict the

timeframe but see how it moves to

impossible now a lot of people think

well if I get in quick and get out quick

then I'll make money there's also no

guarantee as to how quickly it will

collapse it doesn't have to go all the

way down here the only thing that needs

to happen is for somebody to come out

with something better that people

perceive as better and the people in

here will take out their money and put

it in there so those types of things can

cause a collapse now the reason that

they're illegal is because in this

scenario here let's assume it goes much

much further in this scenario here when

it collapses provided John didn't put

his money back in and he kept it John

wins this person wins this person wins

this person wins this person wins this

person wins all these people win okay

but the bottom people which is more than

all the people at the top they all lose

and this is why it's illegal because the

majority of people will lose their money

it's guaranteed

and you might say again well if I get in

early ok again as I said there's no

guarantee to how quickly it will

collapse some have gone for years some

crash in their very first day this is

the most highly addictive thing that I

know of and I'll tell you why

scheme's once you get in are the most

addictive thing in the world because

people believe that money is the answer

to every problem they could possibly

have it is the miracle Savior of their

life so when people get involved in

these and they're making money and again

really what's happening is it's just the

same money circling over and over and

over so John got his money and what does

he do he puts it back in because he

wants to make more money and so that

pays back this person okay and well not

this person because you need another

person like John you need two people to

pay back this person so a lot of that

goes on but what happens is John just

reaches the point of John's goal John

says in the beginning I'm gonna take my

money and I'm gonna put it in and the

first thing I'm gonna do is I'm gonna

get my money out so I'm gonna I'm gonna

I got $200 so I'm gonna take my hundred

dollars out and I'm gonna keep putting

my hundred dollars back in now that's

still money and John's looks at it and

he says I have nothing to lose by keep

rolling this money back into the system

back into the system and all these

people have the same idea but each of

these people have this idea that once it

reaches a certain amount then they're

going to start taking some of it out or

all of it out so what happens is as the

pyramid gets bigger and bigger a larger

number of people reach that point at the

same time so let's say all these people

wanted to make $50,000 I said I'm gonna

let it ride until I make $50,000 and


I'm gonna start taking out $1,000 every

time doesn't matter what the figure is

the more and more people that reach that

point at the same time will also cause a

crash so in the beginning of ponzi

schemes people are pretty much putting

their money back in their money back in

their money back in their money back in

so again it's guaranteed to crash but in

this time that they're in and they're

rolling it in and they're watching it

happen they're thinking when I get that

money I'm gonna be able to make I'm

gonna be able to quit my job or I'm

gonna be able to buy the house of my

dreams or I'm gonna be able to pay off

my debt or I'm gonna be able to do a

million things that people think that

money will do for them that will change

their life forever

and they live in that state of hope and

prosperity even though they have no

money they live in that state and when

that program that they're in crashes

whether they've made money or not

they're now in a different state the

dream is gone and it forces them back

into reality that life is not that easy

and that we have to actually work a real

business or whatever we have to we have

to do work to make money and they don't

want to deal with this they don't want

to so when you're in a state like that

and that happens at any to any person

when something changes abruptly in their

life like when they find out a truth

about some a big truth in their life

that they didn't know before and it

changes their reality for example

someone's in love with a person they

think that they're going to spend the

rest of their life with that person

and then all of a sudden they find out

that that person is actually with

somebody else having an affair or

planning to leave them it changes their

their reality and at that point they go

into the state of do I believe what do I

believe that the person is really doing

that if I if I choose not to believe I

get to stay in my beautiful reality if I

believe then my whole world in that

regard is destroyed so oftentimes people

will choose to stay believing what they

believe rather than face the truth

because believing what they believe

makes them happy so these people when

the pyramid collapses if they've made

any money they'll take that money and

put it into another one or they'll get

more money

and put it into another one and they

will continue to do this year after year

after year after year like a drug addict

until they have nothing left until

they've lost their job because they've

been caught stealing which is actually

very common people take money out of

petty cash and stuff like that because

they believe the lie of the pyramid

scheme that I can take it out and put it

back in there before anybody knows they

take their they mortgage their houses

without telling their spouses they they

use their kids college funds they use

all because they're like an attic they

have to get they have to in order to

feel right they have to be in it and

what happens to these people because

I've been online for 15 years and I've

watched these things that I've watched

people I've worked with hundreds of

thousands of people over the years and

while I've explained this to them the

majority of them choose not to listen to

me and I watch as their life goes into

shambles because in this scenario here

you're right here but the neck

one you maybe down here and then you

might get into another when where you're

right here and then again here in the

end in the end you're going to have let

you you're going to be worse off you're

going to be worse off not to mention

that but there are a lot of people that

lie about how much money they make

because whether it's just because

they're unethical or because they

actually believe they're doing the

person a favor by lying to them because

they believe that if people just get

their - that we're all going to get rich

and if I can convince them to do that

then we'll all get rich so they lie and

say they're making money when they're

not because they have rationalized in

their mind that they're helping people

just got to convince them that it will

work and it will work so that's why it's

so addictive now if you believe in we

reap what we sow if you believe in this

philosophy this belief that what you do

in this world comes back to you then you

have to know that if you're one of these

people up here who made money while

these people lost their money and your

money came from the people who lost

their money then what you've sowed and

what you should expect to come back to

you in your life is not very good so you

know there's a lot of talk out there

from you know people who like somebody

told me one time when I said well that's

a pyramid scheme and they said well the

government's a pyramid scheme the

government while again like MLM might

look like this okay it's not a pyramid

scheme because people are not paying

into the government for a chance to make

money people are paying into the

government because they have to because

if they

they'll go to jail so people are never

going to stop paying their taxes so it's

not a Ponzi scheme a Ponzi scheme is

where people are buying something they

do not want or need truly do not want or

need in order for a chance to make money

because when they no longer are making

money they stop paying and again in that

scenario it would collapse so let's say

for example we didn't put a timer on it

and we said you know when this happens

you'll get this and this and this and

this so what happens is in the beginning

people are getting paid at some type of


some type of time frame you know it may

be they're getting paid you know in

every month or every two months so

people start going okay well we can I we

everybody's getting paid once a month so

people decide okay well I can do this

and once a month is good for me but as

it gets wider and wider and wider the

time gets spread out and now it's two

months and now it's three months and

what happens is people stop paying

completely because the time frame is too

long and somebody else is promising

something better so regardless of the

scenario if people are buying the

product that don't use it or want it or

need it this is going to happen and you

hear about you know like MLM companies

where people talk about they have a

whole garage full of products they're

buying products they don't want or need

way more than they could ever possibly

use they're turning their MLM company

into a pyramid scheme because

everybody's buying products they don't


because nobody needs a garage full of

products so again a pyramid scheme can

happen in a real MLM when when not the

company but the people start to pay

games and say but we're all going to buy

$10,000 worth of products and then we'll

make this much money so again the

product has to be something that people

need it has to be of value now of course

when we join an MLM company we are

buying the product even possibly more

than we can get it from somewhere else

maybe the grocery store sells that juice

for $10 and the MLM sells it for $11 ok

people are still willing to pay the $11

even though they can get it for $10

because there's an opportunity to make

money and there's nothing wrong with

that at all that's not the same that's

not the same situation that doesn't

cause a problem because as long as the

product is good and people will buy the

product simply for the product it won't

create a Ponzi scheme now when we look

at most of the revenue shares that that

I've seen they're all banners or some

other type of you know advertising

looking at ads or that sort of thing but

if you look at them that there's no

place there's no sort of requirement

that people go in and you know like a

lot of them oh you get a banner on the

on the page for every one you get you

get a banner on the page but nobody's

going to look at the banners so the

advertising has no value at all because

no one's going there to look at them so

the people are in fact buying something

they don't want or need because they

want to make money and that cannot stand

now there are ways to to share revenue

with people there are advertising

products that have true value but this

model of a time frame frame with a fixed

percent cannot be done through the sale

of through the sales that is not sharing

revenue that is not sharing revenue when

you promise people more than because you

don't know what your revenue is so how

can you promise somebody something that

be that you'll make tomorrow that you'll

make in 30 days that you'll make in some

of them you know pay every few hours but

it's still exactly the same thing it's

still exactly the same thing the ones

that pay quicker are actually more

addictive because they release chemicals

in the brain very similar to when you

use narcotics of this thing happening

this reward like a mouse in a you know

hitting a lever getting a food reward

and so you get more and more and more

addicted and you go well I only have to

wait six hours for it to double again I

only have the reward is so big that the

people won't take their money out they

won't take the money out so by the time

it collapses you really haven't made

anything even if you took your money out

you spent all that time you exposed

yourself to massive addiction and you

receive nothing in return

so that's the difference between MLM and

a pyramid scheme and like I said many

MLM companies use a matrix and that is

what this is a picture it of but a

matrix is simply a mathematical term

they use it for all kinds of things it's

a way to calculate something it's a way

to show results they use it in science

they use it in in you know construction

and engineering and all

the stuff that has nothing to do with

making money and matrix is just a

mathematical formula to demonstrate

something so you see a matrix that

doesn't necessarily mean it's a pyramid

scheme what makes it a pyramid scheme is

a guaranteed payout in a certain time

frame and a product that people are

buying that they do not want or need

that they wouldn't buy it they wouldn't

pay that price if there wasn't an

opportunity to get to make money that's

where the problem lies okay thanks