Why Are Pyramid Schemes of Investment Unsustainable
Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. The only people who make money are those few who are on the top of the pyramid. Legitimate multi-level marketing companies, on the other hand, can be around for a long time. Although the recruiting of additional investors is an essential part of the marketing practice, since legitimate multi-level marketing companies involve solid products or services, participants in these companies are not subject to huge losses.
By the time the schemes unravelled, they had collected deposits equivalent to about 5 percent of the 2010 GDP of Benin from an estimated 150,000 depositors. According to government data, the average deposit represented 1.5 times the annual GDP per capita.Some assets have been retrieved from the scheme managers and limited restitution is taking place. Colombia: It is broadly estimated that as many as 4 million Colombians invested over US$1 billion in pyramid schemes in the mid-2000s. In 2008, the collapse of one scheme (DRFE) led to rioting and violent protests in 13 cities. The government declared a state of emergency to restore order.
Investors should exercise caution with such schemes or simply avoid them altogether.
Sander, P. (2009). Madoff: Corruption, Deceit and the making of the World's Most NotoriousPonzi Scheme. OM Books International, Noida.