Can an honest pyramid scheme be legal?

[Ming the Merciless]

Lots do make money. That's how pyramid schemes become so popular. Some people make hige amunt of money, more make lots of money but as it trickles down, more and more lose money. But those that can get in early can get a massive return. Where it flips to losing depends on when it runs out of steam

But being an honest scheme the later people would know they are not going to make any money

 

[Cycleops]

I'm sure you'd get plenty of takers in the US.

 

[a.twiddler]

The thread title itself is an oxymoron. It contains words that would not normally co exist in a sentence. "Honest". "Pyramid scheme". It depends on a tiny few who will do well, recruiting the majority who will lose out. It's like "Fair" and "Casino" in recent TV advertising. At least advertisers have to include warnings about gambling addiction and "Be Gamble Aware" in that instance. Perhaps if pyramid schemes had to identify themselves as such and be required to include warnings such as "If it sounds too good to be true, it is too good to be true", "there's one born every minute", and "we never give a sucker an even break", it might solve that problem. If there were more sentences involving "Police" and "Intelligence" (definitely an oxymoron to many) there would be less of them about.

 

[markemark]

But being an honest scheme the later people would know they are not going to make any money

But who knows when the later is? It ends (collapses) when people stop. Is that after 1,000, 100,000, 1m, 10m?

 

[Jody]

It’s more of a thought experiment as to what the illegal part is. What if it is open and honest to all who get involved? Those higher up could make lots of money. It’s a gamble as to when someone would join if they’re above or below the line but all the info as to how many investors there etc is freely available.

I was asking my partner the same question the other day as she was talking about people selling a particular item, then getting a cut when they sign x amount of people after to do the same.

That in itself I don't think is the dodgy practice but it's when the deal comes as part of buying x amount of stock for you to shift and requiring to do so at set intervals. The later investors get stung and left with stock they can't shift.

 

[Dogtrousers]

It's a really interesting question. And what would it look like? A little graph of your potential returns (probably nothing) and so on.

Whether a totally honest Ponzi scheme would get any takers. Meh. Less interesting.

 

[Emanresu]

Seems you are reluctant to leave this issue alone, so here is some reading. Enjoy

https://assets.publishing.service.g...ing_advice_for_the_public_and_communities.pdf

PS The 2008 act was replaced by the CRA 2015 with the elements transferred

 

[Profpointy]

My understanding is that pyramid schemes are in themselves illegal, that is to say, business models where profits depend on recruiting more people rather than selling product. I dare say some barely legal or dubious schemes sail very close to the wind. I can't point to a reference so am open to being corrected

 

[Deleted member 26715]

Seem to remember my wife's cousin being involved in such a venture, Shaklee I think it was, they got in quite early when they came to the UK possibly in the 80's they made a good living with it. But I think @Jody has a good point, it's the requirement to continuously take & sell the product which catches the unwary out. Does Avon not operate on a similar type of scheme?

 

[Dogtrousers]

Yes it is illegal.

There's a good deal in the legislation that bans misleading and aggressive practices. But as we know @markemark is as honest as the day is long and would never be misleading or aggressive.

But even a totally honest and transparent scheme would fall foul of the legislation because it specifically calls out pyramid schemes, even if they are neither misleading nor aggressive.

https://www.legislation.gov.uk/ukdsi/2008/9780110811574/pdfs/ukdsi_9780110811574_en.pdf

SCHEDULE 1 Commercial practices which are in all circumstances considered unfair​

14. Establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products.​

Bloody nanny state red tape busybodies.

 

[Ming the Merciless]

But who knows when the later is? It ends (collapses) when people stop. Is that after 1,000, 100,000, 1m, 10m?

666

 

[slowmotion]

If (1) you clearly explain to the punters that they will lose if they come into the scheme late and (2) give them all the data about how many people are already in, what's the problem? After all, people who play roulette know they will lose in the long term because the odds are stacked against them, and it's perfectly legal to play.

 

[Beebo]

If (1) you clearly explain to the punters that they will lose if they come into the scheme late and (2) give them all the data about how many people are already in, what's the problem? After all, people who play roulette know they will lose in the long term because the odds are stacked against them, and it's perfectly legal to play.

But that’s a game of chance, where everyone has the same chance to win no matter when they start playing.

 

[marzjennings]

The closet thing to a legal ponzi scheme is a closed-end-fund which is allowed to pay investors interest that includes part of their original investment. They're legal here in the US where folks have a higher acceptance of risk (or just like to gamble), but they may illegal in the UK. As far as I can tell a closed-end fund is a great way to launder money and offset taxes from capital gains.

A Ponzi scheme is a fraudulent investment operation(s) that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned.[1]

A managed distribution policy is a distribution policy approved by the SEC whereby a closed-end fund (CEF) can effectively make systematic distributions of a return-of-capital to its shareholders.[2]

It’s all about Disclosure: The key difference between Madoff’s Ponzi scheme and Cornerstone Progressive Return Fund is one of disclosure. CFP, by disclosing it is paying its shareholders back its own money through the establishment of a managed distribution program (Rule 19a-1), is essentially separating itself from the criminal aspect of a Ponzi scheme, i.e., fraud. CFP is telling its shareholders with the blessing of the SEC that “this is your capital and you’re getting it back in the form of a distribution”. Madoff’s crime was essentially one of non-disclosure.

The Value of Good Advice: If Madoff was properly advised, he could have—early in the process of the Ponzi scheme, “rolled up” his accounts into a closed-end fund, Madoff Progressive Return Fund (MAD), received approval by the SEC to institute a managed distribution program, and continue to distribute back to the shareholders’ their own money with impunity.

 

[slowmotion]

But that’s a game of chance, where everyone has the same chance to win no matter when they start playing.

Fair point, but there are some forms of legal gambling in which the point when you "enter the game" alters the odds, eg the Stock Market.