9:59:59.000,9:59:59.000
In 2004,

9:59:59.000,9:59:59.000
a new company called Vemma Nutrition

9:59:59.000,9:59:59.000
started offering a life-changing [br]opportunity

9:59:59.000,9:59:59.000
to earn full time income [br]for part time work.

9:59:59.000,9:59:59.000
Vemma’s offer was open to everybody,

9:59:59.000,9:59:59.000
regardless of prior experience [br]or education.

9:59:59.000,9:59:59.000
There were only two steps to start [br]get started earning:

9:59:59.000,9:59:59.000
purchase a $500-600 starter kit [br]of their liquid nutrition products,

9:59:59.000,9:59:59.000
and recruit two more members [br]to do the same.

9:59:59.000,9:59:59.000
Vemma Nutrition Company grew quickly,

9:59:59.000,9:59:59.000
becoming a global operation

9:59:59.000,9:59:59.000
that brought in 30,000 new members [br]per month at its peak.

9:59:59.000,9:59:59.000
There was just one problem—

9:59:59.000,9:59:59.000
while the company generated $200 million[br]of annual revenue by 2013,

9:59:59.000,9:59:59.000
the vast majority of participants [br]earned less than they paid in.

9:59:59.000,9:59:59.000
Vemma was eventually charged with [br]operating a pyramid scheme:

9:59:59.000,9:59:59.000
a common type of fraud

9:59:59.000,9:59:59.000
where members make money

9:59:59.000,9:59:59.000
by recruiting more people to buy in.

9:59:59.000,9:59:59.000
Typically, the founder solicits an initial[br]group of people

9:59:59.000,9:59:59.000
to buy in and promote the scheme.

9:59:59.000,9:59:59.000
They are then encouraged to recruit others

9:59:59.000,9:59:59.000
and promised part of the money [br]those people invest,

9:59:59.000,9:59:59.000
while the founder also takes a share.

9:59:59.000,9:59:59.000
The pattern repeats for each group [br]of new participants,

9:59:59.000,9:59:59.000
with money from recent arrivals funneled [br]to those who recruited them.

9:59:59.000,9:59:59.000
This differs from a Ponzi scheme,

9:59:59.000,9:59:59.000
where the founders recruit new members

9:59:59.000,9:59:59.000
and secretly use their fees to [br]pay existing members,

9:59:59.000,9:59:59.000
who think the payments come [br]from a legitimate investment.

9:59:59.000,9:59:59.000
As a pyramid scheme grows,

9:59:59.000,9:59:59.000
it becomes increasingly difficult for new [br]recruits to make money.

9:59:59.000,9:59:59.000
That’s because the number of participants[br]expands exponentially.

9:59:59.000,9:59:59.000
Take a structure where each person has [br]to recruit six more to earn a profit.

9:59:59.000,9:59:59.000
The founder recruits six people to start,

9:59:59.000,9:59:59.000
and each of them recruits six more.

9:59:59.000,9:59:59.000
There are 36 people in that second[br]round of recruits,

9:59:59.000,9:59:59.000
who then each recruit 6 people—

9:59:59.000,9:59:59.000
a total of 216 new recruits.

9:59:59.000,9:59:59.000
By the twelfth round of recruiting,

9:59:59.000,9:59:59.000
the nearly 2.2 billion newest members [br]would have to recruit

9:59:59.000,9:59:59.000
over 13 billion more people total [br]to make money–

9:59:59.000,9:59:59.000
more than the entire world population.

9:59:59.000,9:59:59.000
In this scenario,

9:59:59.000,9:59:59.000
the most recent recruits,

9:59:59.000,9:59:59.000
over 80% of the scheme’s participants,

9:59:59.000,9:59:59.000
lose all the money they paid in.

9:59:59.000,9:59:59.000
And in real life,

9:59:59.000,9:59:59.000
many earlier joiners lose out too.

9:59:59.000,9:59:59.000
Pyramid schemes are illegal [br]in most countries,

9:59:59.000,9:59:59.000
but they can be difficult to detect.

9:59:59.000,9:59:59.000
They are presented as many [br]different things,

9:59:59.000,9:59:59.000
including gifting groups,

9:59:59.000,9:59:59.000
investment clubs, and multi-level [br]marketing businesses.

9:59:59.000,9:59:59.000
The distinction between pyramid schemes [br]and legitimate multi-level marketing

9:59:59.000,9:59:59.000
can be particularly hazy.

9:59:59.000,9:59:59.000
In theory, the difference is that members [br]of multi-level marketing companies

9:59:59.000,9:59:59.000
primarily earn compensation from selling[br]a particular product or a service

9:59:59.000,9:59:59.000
to retail customers,

9:59:59.000,9:59:59.000
while pyramid schemes primarily compensate[br]members for recruitment of new sellers.

9:59:59.000,9:59:59.000
In practice, though,

9:59:59.000,9:59:59.000
many multi-level marketing companies make [br]it all but impossible

9:59:59.000,9:59:59.000
for members to profit purely [br]through sales.

9:59:59.000,9:59:59.000
And many pyramid schemes, [br]like Vemma Nutrition,

9:59:59.000,9:59:59.000
disguise themselves as legal multi-level[br]marketing businesses,

9:59:59.000,9:59:59.000
using a product or service to hide the[br]pay-and-recruit structure.

9:59:59.000,9:59:59.000
Many pyramid schemes also capitalize [br]on already existing trust within churches,

9:59:59.000,9:59:59.000
immigrant communities, [br]or other tightly knit groups.

9:59:59.000,9:59:59.000
The first few members are encouraged [br]to report a good experience

9:59:59.000,9:59:59.000
before they actually start [br]making a profit.

9:59:59.000,9:59:59.000
Others in their network follow [br]their example,

9:59:59.000,9:59:59.000
and the schemes balloon in size

9:59:59.000,9:59:59.000
before it comes clear that most members[br]aren’t actually profiting.

9:59:59.000,9:59:59.000
Often, the victims are [br]embarrassed into silence.

9:59:59.000,9:59:59.000
Pyramid schemes entice people with the[br]promise of opportunity and empowerment.

9:59:59.000,9:59:59.000
So when members don’t end up making money,

9:59:59.000,9:59:59.000
they can blame themselves [br]rather than the scheme,

9:59:59.000,9:59:59.000
thinking they weren’t tenacious enough [br]to earn the returns promised.

9:59:59.000,9:59:59.000
Some victims keep trying,

9:59:59.000,9:59:59.000
investing in multiple schemes,

9:59:59.000,9:59:59.000
and losing money each time.