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In 2004,

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a new company called Vemma Nutrition

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started offering a life-changing [br]opportunity

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to earn full time income [br]for part time work.

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Vemma’s offer was open to everybody,

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regardless of prior experience [br]or education.

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There were only two steps to start [br]get started earning:

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purchase a $500-600 kit [br]of their liquid nutrition products,

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and recruit two more members [br]to do the same.

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Vemma Nutrition Company grew quickly,

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becoming a global operation

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that brought in 30,000 new members [br]per month at its peak.

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There was just one problem—

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while the company generated $200 million[br]of annual revenue by 2013,

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the vast majority of participants [br]earned less than they paid in.

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Vemma was eventually charged with [br]operating a pyramid scheme:

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a common type of fraud

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where members make money

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by recruiting more people to buy in.

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Typically, the founder solicits an initial[br]group of people

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to buy in and promote the scheme.

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They are then encouraged to recruit others

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and promised part of the money [br]those people invest,

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while the founder also takes a share.

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The pattern repeats for each group [br]of new participants,

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with money from recent arrivals funneled [br]to those who recruited them.

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This differs from a Ponzi scheme,

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where the founders recruit new members

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and secretly use their fees to [br]pay existing members,

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who think the payments come [br]from a legitimate investment.

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As a pyramid scheme grows,

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it becomes increasingly difficult for new [br]recruits to make money.

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That’s because the number of participants[br]expands exponentially.

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Take a structure where each person has [br]to recruit six more to earn a profit.

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The founder recruits six people to start,

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and each of them recruits six more.

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There are 36 people in that second[br]round of recruits,

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who then each recruit 6 people—

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a total of 216 new recruits.

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By the twelfth round of recruiting,

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the 2.1 billion newest members [br]would have to recruit

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over 13 billion more people total [br]to make money–

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more than the entire world population.

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In this scenario,

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the most recent recruits,

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over 80% of the scheme’s participants,

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lose all the money they paid in.

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And in real life,

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many earlier joiners lose out too.

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Pyramid schemes are illegal [br]in most countries,

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but they can be difficult to detect.

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They are presented as many [br]different things,

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including gifting groups,

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investment clubs, and multi-level [br]marketing businesses.

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The distinction between pyramid schemes [br]and legitimate multi-level marketing

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can be particularly hazy.

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In theory, the difference is that

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the members of the multi-level [br]marketing companies

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primarily earn compensation from selling[br]a particular product or a service

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to retail customers,

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while pyramid schemes primarily compensate[br]members for recruitment of new sellers.

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In practice, though,

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many multi-level marketing companies make [br]it all but impossible

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for members to profit purely [br]through sales.

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And many pyramid schemes, [br]like Vemma Nutrition,

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disguise themselves as legal multi-level[br]marketing businesses,

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using a product or service to hide the[br]pay-and-recruit structure.

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Many pyramid schemes also capitalize [br]on already existing trust within churches,

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immigrant communities, [br]or other tightly knit groups.

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The first few members are encouraged [br]to report a good experience

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before they actually start [br]making a profit.

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Others in their network follow [br]their example,

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and the schemes balloon in size

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before it comes clear that most members[br]aren’t actually profiting.

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Often, the victims are [br]embarrassed into silence.

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Pyramid schemes entice people with the[br]promise of opportunity and empowerment.

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So when members don’t end up making money,

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they can blame themselves [br]rather than the scheme,

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thinking they weren’t tenacious enough [br]to earn the returns promised.

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Some victims keep trying,

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investing in multiple schemes,

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and losing money each time.

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In spite of all these factors,

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there are ways to spot a pyramid scheme.

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Time pressure is one red flag—

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be wary of directives to “act now or [br]miss a once-in-a-lifetime opportunity.”

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Promises of large, life-altering[br]amounts of income are also suspect.

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And finally, a legitimate multi-level [br]marketing business

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shouldn’t require members to pay for the[br]opportunity to sell a product or service.

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Pyramid schemes can be incredibly [br]destructive to individuals,

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communities, and even entire countries.

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But you can fight fire with fire

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by sending this video to three [br]people you know,

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and encouraging them to do the same.