why are pyramid schemes illegal

Pyramid schemes are illegal because they are fraudulent and unsustainable business models that rely primarily on recruiting new participants to pay the earlier investors, rather than on the sale of legitimate products or services. This structure inevitably collapses when recruitment slows down, causing most participants—especially those who join later—to lose their money. The schemes do not create genuine value and are considered deceptive and harmful to consumers and investors. Laws prohibit pyramid schemes because they are essentially scams that guarantee financial loss for the majority of participants and can lead to criminal prosecution for those who operate or promote them.