Latest on Pyramid Scheme from Massachusetts
There is something about the human mind that craves the uncertainty of a lottery. But would you pay $100, $1,000, or $5,000 for an unknown chance at getting $800, $8,000 or $40,000?
Well according to the Massachusetts Attorney General, at least 300 individuals were victims of an illegal pyramid scheme.
According to the indictments, "from January 1, 2006 through September 14, 2006, these five individuals allegedly organized, managed or recruited people to participate in a type of illegal lottery known as a pyramid scheme. In order to join the game, which used pyramid-shaped tables, individuals were required to pay either $100, $1,000 or $5,000. For this entry fee, each participant received a place on the bottom level of the pyramid and was promised that if they moved to the top of the pyramid, they would receive eight times their initial investment. In order to move up the pyramid, participants were required to recruit at least two new players, with each new player paying the entry fee in exchange for a place at the bottom of the pyramid.
Each pyramid-shaped table had four levels. The entry level at the top of the pyramid was called the "appetizer." As new players were recruited, participants would move up to the "soup and salad" level, and then to the "entree" level, and finally to the "dessert" level. Once a participant reached the "dessert" level, he was entitled to eight times his initial investment (either $800, $8,000 or $40,000). Whether a participant made it to the top of the pyramid depended upon every new participant successfully recruiting at least two new players. As with other pyramid schemes, in this game, hundreds of participants paid entry fees but never won any money because insufficient numbers of new players entered the game at the "appetizer" level."
Hmm, if all 15 places on the pyramid are bought for $100, then the promoter gets $1500, of which $800 goes to the top position. Nice work.
I had occasion to talk with an individual several years ago, who was considering joining a similar plan. She was a professional, well educated, and not in need of quick cash. Her main concern was whether the scheme worked as advertised: she had friends who had cashed out, so she believed that it worked. But was still unsure. She was considering just putting in $100 to test it out.
I explained to her that she should not be concerned about whether it worked, but rather if she did get paid, then which one of her close friends had to lose money so that she could "win" hers.
These illegal lotteries should be made legal, run by the state, and called "Musical Chairs Lottery". The basic premise of everyone throwing in $100 in a pot, buying a lottery ticket and getting a chance at 50%, the 50/50 draw, is the available at every hockey game in Canada. The premise is stale. Why cannot the hockey organizers run a "Musical Chair Lottery", complete with audits, and other constraints? Apparently, there is the demand for it.
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