Pyramid scheme

from Wikipedia, the free encyclopedia

A snowball system or pyramid system are business models that require a constantly growing number of participants in order to function, analogous to a snowball rolling down the slope and thereby steadily growing. Alleged profits or rather excess liquidity arise almost exclusively from new participants in the system, bringing in or generating their own capital. Sometimes there is no product at all or only one overpriced product, so that there is a fraud offense .

Each participant will sometimes share in all income received by the participants they have recruited, from which the name pyramid system is derived. This not only benefits the founders, but also participants who have been with us for a particularly long time. Alternatively, the founders themselves shift all income within their system in a targeted manner , so that investors are led to believe that they are receiving a return , while the majority of the investments are embezzled and thus lost.

Pyramid systems are special cases of constructs that are dependent on constant growth under finite framework conditions and therefore usually collapse or blow up within a few years.

In most countries these are now - at least partially - illegal.

to form

Differentiation from the Ponzi system

The Ponzi system , also Ponzi scheme ( English Ponzi scheme ) or Ponzi game , is named after the American fraudster Charles Ponzi . Its history and also the term Ponzi scheme but is largely unknown in the German-speaking world, although the Ponzi scheme, some cases of pyramid scheme describes in more detail. These include investments for which very high returns are promised, but which only exist on paper. When investors ask for money back, they are paid off over time to keep new customers' trust. The payouts can only be financed by using the deposits of other investors. There are no value-increasing transactions or real investments with these investment models. The system collapses when a large number of investors try to get their deposit back.

In the professional world, the pyramid scheme and ponzi game are sometimes used synonymously. Despite the similarities, there are clear differences. What both systems have in common is that the number of participants must increase exponentially in order not to collapse (with the pyramid scheme, however, with much higher growth rates), and that the contributions of new participants cover the profit distributions of the existing participants. But the main difference is:

  • In the Ponzi scheme, participants are aware of the founders of the scheme while the source of the profit distributions is obscured.
  • With the pyramid scheme, this is the other way round: new participants rarely have contact with the founders, while the source of the profit distributions is transparent.
to Pyramid scheme Ponzi scheme
Typical "incentive" High profits through a one-time investment in order to then sell the product yourself. In the pyramid scheme, it is often not a real product that is usually traded. Often it is only allowed to sell the “product” to customers who are also or want to become distributors. Big profits with little or no risk. You only have to transfer money and otherwise not be active yourself. Often only a small part of the amount is invested in something.
Payments One-time or recurring entry fees. The profits come from the new customers you have recruited yourself. The participant only has to invest, but not otherwise take action. The source of the profit distributions is obscured.
Interaction with the founder Sometimes there is no interaction with the founder. New investors are recruited at all levels of the pyramid scheme. The founder interacts with all new investors.
functionality New customer fees finance the success fees of current participants. With the payments of new customers, the profit distributions of current customers are financed.
collapse Quite quickly, because in order to maintain the system several times as much new customers have to be acquired at each level. Relatively slowly, especially when satisfied customers reinvest the profit distributions.

Well thought-out pyramid schemes tend to grow slowly and collapse either through government intervention or the widespread knowledge gained from potential new customers. With the Ponzi Scheme , the "customers" are in direct contact with the fraudsters, while with the Ponzi Scheme the originators are veiled. Pyramid schemes are usually easy to spot so new customers can be warned. As time goes on, it becomes more and more difficult to recruit new members who fall for the system. Gradually, the proportion of members who can no longer amortize their investment increases . The system collapses if the previously successful members also give up and change the system.

The collapse inevitably occurs because the total deposit or the number of participants would have to grow exponentially , which is not possible in the long term in a world of limited resources. If a new participant has to recruit two members, there will be four in the second stage, eight in the third stage, 16 in the fourth stage, and so on. In the tenth stage there are already over 1000, in the twentieth over a million. If a participant has to recruit five members, in the tenth stage there are already almost 10 million, in stage 15 already more than there are people on earth.

Heart and gift circles

No valuable products or services are offered in heart or gift circles . New entrants must pay a joining fee to whoever referred them. The advertiser keeps part of the membership fee for himself. Often the person who recruited the recruiter (“second level recruiter”) also receives a share. The new participants in turn begin to recruit new members. Once they have attracted a sufficient number of new participants, their own membership fee pays off and they make a profit. An early example in Germany was the Ducat Society founded in 1746 .

Pyramid schemes

In pyramid systems , products are passed on from top to bottom, which leads to a price increase . A advertises B, B has to buy a product from A (this costs B e.g. 50 cents more than A), B can now resell this product, or advertises C, who purchases the product from B immediately (50 cents more expensive ) etc. This only works up to a certain price, after which the system collapses for the lowest. The dangerous thing about it is the product flow from top to bottom in width, the transfer of products from A to B to C and the change in prices.

Multi-level marketing

The distinction between illegal pyramid schemes and legal structured sales or multi-level marketing often causes difficulties . The transition is fluid and partly depends not only on the design of the rules, but also on their actual implementation. The basic question for the demarcation is: Would the customer purchase the product offered even if he did not receive any commission for referring new customers?

With a pyramid scheme, the earning potential for recruiting new customers is regularly in the foreground. This can already be seen in the address: Pyramid schemes are used to advertise income opportunities instead of consumer products. With permissible multi-level marketing, the product is mainly distributed to consumers who do not also become part of the distribution system, or a legitimate consumer network is established in which the distribution partners are also the consumers. Possible costs for the transport of goods, advertising and other operating expenses (ancillary wage costs, rents for business premises, wholesale margin, etc.) are saved here and instead distributed as a bonus to the sales partner.

The following are signs of an illegal pyramid scheme:

  • Earning opportunities consist predominantly of the advantages that are granted for the recruitment of new members, with what is often referred to as “passive income” (or “independent income”).
  • The product sold is overpriced.
  • The trade margin or sales commission is unusually high for the product and industry.
  • There are hardly any customers who would purchase the product at the offered price without the prospect of commission.

In Switzerland, the criterion of exclusivity is primarily used (corresponding to the first criterion): If the entry fee can only be amortized through the recruitment of new members, it is a pyramid scheme. In this case, the possibility of amortization depends on the existing market saturation, i.e. H. the new member risks failing in amortization when the market is saturated because a sufficient number of new members can no longer be found. The fact that a new member cannot judge the degree of saturation of the market and thus ultimately plays with chance when paying his entry fee is the “lottery-like element” on which the ban on pyramid schemes is based.

Comparable cases

In the 1860s, Adele Spitzeder set up a pyramid scheme in Munich in which she paid high interest credits by paying in new customers. When 60 customers asked for their deposits back at the same time, the system collapsed.

In the 1920s, Charles Ponzi in the United States managed to collect around US $ 150 million in about six months from today's value. Fake investments suggested to investors that the returns were actually being generated. Charles Ponzi claimed to have developed a special business model that made the returns possible.

In 1997, pyramid schemes sparked serious unrest in Albania . As with all pyramid schemes, investors were offered very high returns on their investments. Many families invested their entire fortune, and houses were often loaned. A total of US $ 1.2 billion was invested. The companies in Albania, true to Ponzi's example, carried out occasional bogus investments with the aim of pretending to investors that the promised income was actually achieved.

The Turkish company Yimpaş advertised faith as a seal of quality among Turks abroad in Europe. Over 50 Turkish holdings acquired between 5 and 50 billion euros, preferably in mosque associations , between 1997 and 2002 using the so-called Konya model . It was suggested to investors that they would invest their money according to the commandments of Islam , and that their investments would create jobs in Turkey and generate high returns.

The largest such investment system to date was announced in December 2008. Bernard L. Madoff damaged his investors with the help of a supposed hedge fund by a total of about 65 billion dollars. On June 29, 2009, Bernard L. Madoff was sentenced to 150 years in prison. Madoff's fraud, however, had more of the characteristics of a Ponzi scheme: He paid dividends to his investors from their own capital, but did not have to rely on constantly finding new investors. His system worked for over 15 years - which would be unlikely with a classic pyramid scheme - because it paid out constant, but not extremely high dividends and was thus able to avoid special attention and suspicion for a long time.

In Germany in 2010, the GFE-Group (headquarters: Nuremberg and Switzerland) was targeted by the judiciary on suspicion of operating a pyramid scheme. The GFE-Group sold block -type thermal power stations , which were then to be leased by a sister company for years at a guaranteed monthly lease of 2.5% of the investment sum. The high revenues (30 percent return per year) should be achieved through the extremely high efficiency of the rapeseed oil- operated CHPs. The specified performance data suggested unrealistically high electrical efficiencies of over 75%. Without being able to produce a functioning prototype, the company took funds totaling 62 million euros from 1,400 customers and paid out the first installment of the promised return. On November 30, 2010, there were finally raids in 28 business and residential rooms, in which 7 people from the management were arrested. The trial against 14 of the current 52 accused began on September 24, 2012 before the Nuremberg-Fürth regional court. In February 2014, 11 defendants were finally convicted of commercial and gang fraud. The sentence was measured with imprisonment between nine years for the main accused company founder Horst K. and three years for the managing director.

In April 2011, the economist Laurence Kotlikoff from Boston University described old-age pensions in the western industrialized nations, especially in the USA, as a pyramid scheme . The payments to old people depended on the steady influx of young contributors, which is no longer the case in the USA. However, according to Horst Käsmacher and others, this criticism is only applicable if one starts from certain - in his opinion questionable - assumptions: for example, that one assumes a constant contribution rate and at the same time assumes that the nominal pension insurance claims in the future - the Height after - at least not sink. Nor is it taken into account that contribution gaps are closed by contributions from tax revenues. The level of national debt is basically irrelevant as long as the national budget can be co-financed through money creation , which is the case in the USA.

On September 20, 2011, New York District Attorney Preet Bharara described the online poker service Full Tilt Poker as a massive Ponzi scheme in a press release. Full Tilt Poker ran out of capital to cash out all of its players. In November 2010, customer deposits were 344 million USD bank deposits over 145 million USD. As of April 2011, there were $ 60 million in receivables of $ 390 million. The allegations relate to various misconducts in business operations, not the actual poker game.

Other known cases are:

  • European Kings Club , pyramid scheme with CHF 1.6 billion loss, collapsed in 1994
  • Reed Slatkin
  • Ivar Kreuger
  • Sergei Panteleevich Mawrodi , pyramid scheme with 10 to 15 million injured people
  • Infinus scandal
  • FlowTex , the basis of the business was non-existent construction machinery
  • Prokon , not a classic pyramid scheme, as wind farms existed to generate income
  • Dieter Behring , Swiss hedge fund provider, 800 million Swiss francs loss
  • S&K Group , pyramid scheme with real estate funds, damage of around 240 million euros
  • Lyoness / Lyconet, in June 2018 the Norwegian gaming authority banned the business activities of Lyoness International AG as an "illegal, pyramid-like sales system". The business system was u. a. also the subject of antitrust investigations in Italy, which were concluded in January 2019 by the Guardia di Finanza with a fine of 3.2 million euros.

Suspected case of Dexcar

The Vorarlberg Chamber of Labor warned on March 24, 2017 about the business model of the alleged German rental car agency Dexcar and, after numerous complaints from consumers, filed a criminal prosecution complaint with the Feldkirch public prosecutor on June 16, 2017. With “Advisors”, Dexcar advertised “return-based crowdfunding” in Vorarlberg as well. "In March (2017) the Italian regulatory authority for competition and the market imposed a fine of 400,000 euros for unfair business practices."

Historical and legal aspects

The distribution of goods in the pyramid scheme is not an invention of the 20th or 21st century. Even in the monarchy, complaints against so-called “snowball collections” were repeatedly loud from commercial circles. The system worked in such a way that when the customer bought the goods , he was offered the prospect of recovering part of the purchase price paid if he would sell instructions to potential new customers for a certain number of additional transactions that he had to acquire. Such instructions were called coupons . Again and again the population was warned about these practices in the media:

The watch coupon fraud, which was already mentioned in this paper, seems to be spreading to other branches of trade as well. Last week in F. several people received circulars from the bicycle companies “Multiplex” and “Elliot” in Berlin. Both companies offer bicycles for 9 and 10 kroner respectively, but the buyer has to send in 50 kroner, whereupon he receives four vouchers that he can sell to others for 10 kroner. As soon as each of the other four has sent in 40 kroner, our buyer receives the bike, so the company actually collected 50 kroner and 4 × 40 kroner = 210 kroner before delivering a bike. For each additional bike it seems to take only 4 × 40 crowns, but it should be noted that many, perhaps the majority, send in 40 or 50 crowns without receiving a bicycle. So our buyer has a bicycle for 10 K, which those who fail to find four more fools pay for.

In the European Union, pyramid schemes are forbidden to consumers in accordance with No. 14 Appendix I of the UGP Directive (Directive 2005/29 / EC) , implemented in Germany by Section 3 (3) Appendix No. 14 UWG.

In Germany, such systems are covered by Section 16 (2) of the Act against Unfair Competition (UWG): "Anyone who undertakes business transactions to induce consumers to purchase goods, services or rights by promising that they would either be provided by the organizer himself or obtain special advantages from a third party if they induce others to conclude similar transactions, which in turn are supposed to obtain such advantages for a corresponding advertising of further customers according to the nature of this advertising, will be punished with imprisonment of up to two years or a fine. " The offense is designed as a so-called corporate offense and as an abstract endangering offense. That means, there doesn't even have to be any damage. Even the "attempt" to set up a pyramid scheme is a criminal offense. From a practical point of view, the attempt within the meaning of § 22 StGB is excluded, except in cases of error, since the attempt and completion coincide. A criminal liability for § 263 StGB ( fraud ), on the other hand, usually fails because the person concerned was not deceived about the content of the game. According to the established case law of the Federal Court of Justice, injured parties can reclaim their missions in accordance with the principles of unjust enrichment ( §§ 812 ff. , § 817 BGB ) or in accordance with tort law ( §§ 823 ff. , § 826 BGB) without being prevented from doing so by § 817 sentence 2 BGB.

For injured parties, however, it is problematic that they have to reimburse payments received (including so-called fictitious profits ) in the event of the later insolvency of the company operating a pyramid scheme in many cases to the insolvency administrator according to Section 134 InsO under the aspect of insolvency contestation. This also applies if they were entitled to the payment and were misled about the reason for the payment and the system as a whole. Whether there is a repayment obligation is difficult to assess in individual cases; Numerous supreme court decisions have been made on this in recent years.

In terms of tax law, however , the (ticket) profits credited to the participant from the pyramid scheme are taxable in accordance with Section 20 (1) No. 4 EStG . According to the case law of the Münster Finance Court, this also applies to so-called gift circles.

Pyramid games have been banned in Austria according to Section 168a of the Criminal Code since March 1, 1997: The penalty is up to 6 months; if there are many victims, they face up to 3 years imprisonment.

In Switzerland, events that function according to the pyramid scheme are prohibited by Art. 3 lit. r of the Federal Act on Unfair Competition. Depending on the structure and mode of operation, pyramid schemes also violate the Banking Act, the Stock Exchange Act , the Collective Investment Schemes Act or the Money Laundering Act. It is also prohibited to carry out banking, securities dealer or financial intermediary activities that require a license without the corresponding authorization from the Swiss Federal Banking Commission.

Other word meanings

In relation to scientific work , one speaks of a pyramid scheme also when it comes to literature research, which, based on an already known title, leads to further thematically relevant publications by evaluating the bibliography or footnotes in publications. As the first source for the literature research with the pyramid scheme, you should choose a work that is as current and general as possible, such as a lexicon entry, an introductory work or a textbook . In the publications found, the procedure is repeated, whereby one progresses from general to specific technical literature and deepens the subject. Compared to a systematic search in bibliographies and databases , the pyramid scheme has the disadvantage that only older publications can be identified as the original source. In addition, there is a risk that predominantly publications are found that represent a certain point of view and cite each other (so-called citation cartels), so that a one-sided picture emerges if the pyramid scheme is not supplemented by other methods or not started from several different starting points .

See also


  • Joerg Brammsen, Simon Apel: Madoff, Phoenix, Ponzi and Co. - Does the “snowball ban” require progressive customer recruitment in Section 16 II UWG to be expanded? , in: WRP 2011, p. 400 ff.
  • Daniel Fischer: Charles Ponzi & Konsorten , in: Kriminalistik 2010, p. 602 ff.
  • Robert Kilian: On the criminal liability of Ponzi schemes - The Madoff case according to German competition and capital market criminal law , in: HRRS 2009, p. 285 ff.
  • Gerhard W. Schorsch: Ponzi-Schemes and Prime Bank Instruments Fraud , in: Kriminalistik 2007, p. 236 ff.
  • Edwin A. Biedermann: Recommendation marketing - consumer networks, the sales channel for expansion . Self-published: MSB Marketing, Springe 2007, ISBN 978-3-00-022125-5 ; 5th edition 2012 (Chapter 4 deals with all points of criticism, including pyramid schemes ).

Web links

Wiktionary: Pyramid scheme  - explanations of meanings, word origins, synonyms, translations

Individual evidence

  1. Hans-Werner Sinn: Casino Capitalism. How the financial crisis came about and what needs to be done now. Ullstein, completely updated 1st edition June 2010. ISBN 978-3-548-37303-4 . P. 193.
  2. ^ Ponzi Schemes - Frequently Asked Questions. US Securities and Exchange Commission, accessed August 3, 2013 .
  3. This woman made the "pyramid scheme" fraud big. In: November 11, 2017, accessed March 14, 2018 .
  4. ^ Madoff Pleads Guilty to Ponzi Scheme , Bloomberg, March 12, 2009
  5. a b Heinz Wraneschitz: GFE: Biggest fraud trial in bioenergy , of 25 September 2012 accessed on 4 December 2012 found.
  6. ^ [1] , Nürnberger Zeitung December 1, 2010
  7., Nuremberg, Germany: GFE process: nine-year prison sentence for company founder Horst K. ( [accessed on July 10, 2018]).
  8. “The USA is worse off than Greece” , Neue Zürcher Zeitung, March 11, 2011
  9. [2]
  10. ^ Nathan Vardi: Feds Call Full Tilt Poker A Massive Ponzi Scheme. Forbes .com, September 20, 2011, accessed July 11, 2012.
  11. Manhattan US Attorney and FBI Assistant Director in Charge Announce the Arrest of Full Tilt Poker CEO Raymond Bitar FBI .gov, July 2, 2012, accessed July 11, 2012.
  12. Prokon. Handelsblatt, accessed on November 14, 2016 .
  13. Norway forbids Lyoness. Wiener Zeitung , June 12, 2018, accessed on July 4, 2019 .
  14. PS11086 - Pyramid selling scheme and deceptive promotion, over € 3 million penalty to Lyoness. In: agcm, January 14, 2019, accessed on January 25, 2019 .
  16. ^ AK Vorarlberg initiates legal steps against Dexcar, June 16, 2017, accessed June 24, 2017.
  17. AK shows rental car company Dexcar at the public prosecutor, June 24, 2017, accessed June 24, 2017.
  18. Innsbruck News. No. 123 (May 30). Innsbruck 1900, p. 3 u. No. 173 (July 31). Innsbruck 1900, p. 3.
  19. Joerg Brammsen, Simon Apel: “Ponzi schemes after the 4finance decision of the ECJ: coordination problems in relation to No. 14 Appendix I UGP-RL and No. 14 Appendix to § 3 Abs. 3 UWG among each other and to § 16 Abs. 2 UWG . "In: GRUR int. 2014, pp. 1119–1125.
  20. It is different, however, Joerg Brammsen, Simon Apel: Madoff, Phoenix, Ponzi and Co. - Does the “snowball ban” require progressive customer advertising in Section 16 II UWG to be expanded? , in: WRP 2011, p. 400 ff .; Robert Kilian: On the criminal liability of Ponzi schemes - The Madoff case according to German competition and capital market criminal law , HRRS 2009, p. 285 ff.
  21. ^ BGH, judgment of November 6, 2008 , Az. III ZR 120/08.
  22. Attachment in the "pyramid scheme": The insolvency administrator's claim for reimbursement due to contestation of unpaid services. In: February 18, 2009, accessed on May 4, 2016 .
  23. BGH, judgment of March 29, 2012 - IX ZR 207/10, ZInsO 2012, 875 ff .; BGH, judgment of July 18, 2013 - IX ZR 198/10, juris; BGH, judgment of December 11, 2008 - IX ZR 195/07, BGHZ 179, 137 Rn. 6; BGH, judgment of April 22, 2010 - IX ZR 163/09, WM 2010, 1182 Rn. 6; Overview of the contest rulings for archived copy ( memento from May 4, 2016 in the web archive )
  24. BFH, judgment of October 28, 2008 , Az. VIII R 36/04; Full text.
  25. ^ FG Münster, judgment of January 18, 2010 , Az. 5 K 1986/06 E
  26. Legal »Ponzi scheme / pyramid scheme. In: Retrieved October 31, 2016 .
  27. Example of a literature search based on the pyramid scheme
  28. Claus Ebster, Lieselotte Stalzer: Scientific work for economists and social scientists . 3rd edition, Vienna 2008, p. 45 f.