9 Famous Pyramid Scheme Companies in US History
Yahoo Finance/ January 17, 2023
By Omer Farooq
In this article, we will discuss the 9 famous pyramid scheme companies in US history. If you want to read about similar companies, you can also take a look at 5 Famous Pyramid Scheme Companies in US History.
Pyramid schemes, Ponzi schemes, and MLM scams have been a part of the American economy since the early 20th century. Over the years, many such schemes have come and gone, leaving behind stories of financial ruin and heartache. Among the most notorious of these pyramid schemes are those that have become so famous that they still linger in the public consciousness. Companies like the infamous Ponzi scheme run by Charles Ponzi and the notorious Stanford Financial Group are infamous for their fraudulent activities and the lives they ruined. In this article, we will take a look at some of the most famous pyramid scheme companies in US history, and the stories behind them. But before that, let's first understand what are pyramid schemes and how are they different from Ponzi schemes and MLM businesses.
Pyramid Vs Ponzi Vs MLM
A pyramid scheme is a form of fraud that involves promising participants payments or services, primarily for enrolling other people into the scheme, rather than supplying any legitimate investment or sale of products or services to the public.
A Ponzi scheme is an investment scam where early investors are paid returns with money from later investors, creating the illusion of a profitable enterprise. It is named after Charles Ponzi, who became notorious for using the scheme in the early 1920s.
MLM stands for Multi-Level Marketing. It is a business model that relies on independent sales representatives to market and sell a product or service. These representatives earn commissions on their sales, as well as commissions from the sales of their downline members. It is a type of direct selling, and is also known as network marketing.
In a pyramid scheme, members of a group are paid for recruiting new members and not for selling the product. In a Ponzi scheme, a fraudster uses the money from new investors to pay earlier investors a high return. In an MLM business, or multi-level marketing, members make money by selling products and recruiting more members.
While MLM businesses are legal, as long as they are run in accordance with certain regulations, both pyramid schemes and Ponzi schemes are illegal.
So all pyramid schemes are disguised as MLM businesses but not all MLM businesses are pyramid schemes. As for Ponzi schemes, if a wise guy comes around and promises you 10x returns only if you recruit 10 people, take it as a red flag.
Back To Pyramids
Pyramid schemes are illegal and fraudulent investment programs, in which participants are promised financial returns based on recruiting other participants into the scheme. This form of investment fraud is illegal in many countries, including the United States.
A pyramid scheme works by luring new investors with promises of high returns on their investments. These investors are then encouraged to recruit more people to join the scheme, who in turn are promised high returns as well. However, the scheme is unsustainable and the returns promised are rarely achieved, resulting in the scheme collapsing and leaving investors with nothing.
In a typical pyramid scheme, the original investor is at the top of the pyramid and the people they recruit are at the bottom. As more people join the scheme, the money from the new investors is used to pay the people at the top. This money is then split between the original investor and the people who recruited them.
The problem with pyramid schemes is that there is no real product or service being sold, and no real returns, as the money is simply being cycled from one investor to another. This means that in order for the scheme to be successful, an infinite number of people must join. Eventually, the scheme collapses as the number of new recruits runs out.
Now that we have developed an understanding about pyramid schemes, Ponzi schemes, and MLM businesses, let's take a look at some of the most famous pyramid scheme companies in US history.
Our Methodology
For this list, we researched extensively and looked for companies that have been found guilty of running pyramid schemes. Most of the companies mentioned in this list are defunct, as of January 2023. We have ranked our picks according to the year that they ceased operations, from earliest to latest.
Famous Pyramid Scheme Companies in US History
9. Koscot Interplanetary, Inc.
Ceased Operations: 1971
Koscot Interplanetary, Inc. was an American multi-level marketing company based in Orlando, Florida. Founded in 1967, the company sold mink oil-based cosmetics. The company was charged by authorities for illegal business practices in the early 1970s and ceased operations in 1971.
Koscot Interplanetary, Inc. allowed people to peddle cosmetics both in person and through hosting parties. However, the primary goal of the company was to sell distributorships. Those who wanted to become supervisors paid a fee of $2000, while those who wanted to become directors paid $5400. Along with the purchase of these distributorships, individuals also received commissions for recruiting other supervisors and directors, as well as for the orders of cosmetics that other people they recruited made. The company managed to run one of the most famous pyramid schemes in US history.
8. Holiday Magic
Ceased Operations: 1974
Holiday Magic was an MLM founded in 1964 in the U.S. by William Penn Patrick. The company sold home-care and cosmetics products and encouraged distributors to recruit others in a pyramid structure, which was later characterized as a pyramid scheme. After Patrick's death in 1973, the company was dissolved in 1974 and had been investigated by the Market Court of Sweden, the U.S. Securities and Exchange Commission, the Federal Trade Commission, and the State of California. A settlement of $2.6 million was approved by the court.
7. United Sciences of America, Inc.
Ceased Operations: 1987
United Sciences of America, Inc. was a popular American company that marketed and sold nutritional supplements such as "Master Formula", "Calorie Control Formula", "Fiber Energy Bar", and "Formula Plus" through multi-level marketing. The company was endorsed by celebrities and had 140,000 distributors, but was accused of fraud and was closed down in the late 1980s. The company's products were advertised as being able to reduce the risk of cancer, AIDS, arthritis, alcoholism, and heart disease.
United Sciences of America, Inc. filed for bankruptcy in 1987 after the company's pyramid scheme fell apart. It is one of the most famous pyramid scheme companies in US history.
6. Equinox International
Ceased Operations: 2001
Equinox International was a multi-level marketing company, founded by Bill Gouldd in 1991. In 2000, investors, the FTC, and several states brought legal action against the company for operating an illegal pyramid scheme, resulting in a settlement of $40 million in restitution. Gouldd was ordered to surrender substantial holdings, and Equinox International was dissolved. Bill Gouldd was also barred from participating in any multi-level marketing program.
In this article, we will discuss the 5 famous pyramid scheme companies in US history. If you want to read about similar companies, you can go to 9 Famous Pyramid Scheme Companies in US History.
5. BurnLounge, Inc.
Ceased Operations: 2012
BurnLounge, Inc. was an online music store established in 2004 in New York City. By 2006, the company had 30,000 users. In 2007, the FTC sued BurnLounge, Inc. for being an illegal pyramid scheme, and in 2014 the company lost the case. The company’s website allowed consumers to preview and buy music and communicate via a dedicated app. To sell music on their own pages, consumers had to buy a subscription. The fees changed depending on the plan, with an annual fee plus a monthly fee option. The fees allowed consumers to earn sales points for BurnLounge products and consumers were allowed to exchange these points for cash, after paying an additional fee.
4. Fortune Hi-Tech Marketing
Ceased Operations: 2013
Founded in 2001, Fortune Hi-Tech Marketing was a Lexington, Kentucky-based company that used a multi-level marketing approach to sell consumer goods and services. However, in 2013 the Federal Trade Commission and regulators for three states took action against the company for being a pyramid scheme, ultimately shutting it down.
Fortune Hi-Tech Marketing used multi-level marketing to recruit representatives to sell a variety of retail services and products. The company had a sign up fees that ranged between $99 and $299. The representatives were paid a commission and bonuses for recruiting more representatives. The products sold by the company had low-profit margins, and representatives were paid a commission between 0.25% and 1%. The company sold a variety of products including mobile phones, Dish Network TV, and hair-care products, among others.
3. Telexfree
Ceased Operations: 2014
Telexfree was a multi–level marketing company based in Marlborough, Massachusetts, United States, that sold VoIP telephone services and other products. The company was founded in 2012 by James Merrill and Carlos Wanzeler and was declared a pyramid scheme in April 2014 by the Massachusetts Securities Division and the U.S. Securities and Exchange Commission. Telexfree marketed its services through a multi–level marketing (MLM) system, which allowed users to recruit other participants to sell Telexfree services in exchange for commissions. Participants were encouraged to invest in Telexfree in order to qualify for commissions, and were promised returns of up to 200%. Participants were also promised bonuses for recruiting new members, which was the main focus of the company’s marketing. The company’s MLM scheme was a classic pyramid scheme, in which money from new recruits is used to pay existing participants, and was declared a fraud by the Massachusetts Securities Division and the SEC in April 2014 and the company was forced to declare bankruptcy. Telexfree is one of the most famous pyramid scheme companies in US history.
2. WakeUpNow
Ceased Operations: 2015
WakeUpNow was an MLM company based in Provo, Utah, founded in 2009 by Troy Muhlestein. It sold health and financial management products, such as WUN Fit, Thunder energy drink, WUN MD, Awaken drinks, WUN Finance, Taxbot, WUN Protect and Vacation Club. The company closed US operations in 2015. Pyramid scheme expert, Robert FitzPatrick, told the Daily Herald that he views WakeUpNow as a pyramid scheme and an economic cult. WakeUpNow is one of the most famous pyramid scheme companies in US history.
1. Vemma
Ceased Operations: 2015
Vemma was a privately-owned MLM that sold dietary supplements. In 2015, the FTC closed it down for deceptive practices and operating a pyramid scheme. Vemma sold its products online and through independent distributors (called affiliates). In 2013, the company became an affiliate marketing company. In 2014, Vemma modified its compensation plan, and in 2015 the FTC sued the company, accusing it of running a pyramid scheme. The company has been defunct since 2015 and is ranked among the most famous pyramid scheme companies in US history
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