iRealtee OS Glossary

Pyramid Scheme

A pyramid scheme relies on continuous recruitment to pay earlier joiners, collapses when recruitment slows, and typically disguises fees as “membership,” “train...

Pyramid Scheme

Pyramid Scheme is a concept that describes a fraudulent recruitment-based model where participants earn mainly from enrolling new members rather than selling real products or services.

Definition

A pyramid scheme relies on continuous recruitment to pay earlier joiners, collapses when recruitment slows, and typically disguises fees as “membership,” “training,” or “inventory” buys. In Philippine real estate, it becomes relevant when commission overrides or referral programs prioritize agent sign-ups over actual property sales, risking violation of anti-fraud and consumer protection rules.

Key Components

  • Revenue source: enrollment fees from new recruits, not legitimate product/service sales.
  • Structure: multi-level uplines and downlines with promised passive income for recruiting.
  • Red flags: mandatory buy-ins, pressure to recruit, unclear products, and income claims unrelated to sales.
  • Legal risk: potential violations of the Revised Penal Code (estafa), Securities Regulation Code (investment solicitation without registration), and consumer protection laws.

How It Works

  1. Organizers promise high returns for joining and recruiting others.
  2. New joiners pay fees that fund payouts to earlier members.
  3. Recruitment slows; cash inflow drops; payouts halt and the scheme collapses.
  4. Authorities may investigate and penalize organizers and promoters.

Pros & Cons

  • Pros: None for participants; only organizers briefly benefit.
  • Cons: Financial loss for most joiners, reputational damage, regulatory sanctions, and possible criminal liability.

Real-World Application (Philippine Real Estate)

References

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