How is a pyramid scheme illegal
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
old
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
it
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
pay
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
$200
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
collapse
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
then
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
rate
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
need
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
