Pyramid scheme

“ Subsection (1) does not limit the matters to which the court may have regard in determining whether a participation payment is entirely or substantially induced by the prospect held out to a new participant of entitlement to a recruitment payment.
5. Offences in relation to pyramid scheme
(1) A person who knowingly promotes a pyramid scheme commits an offence.
(2) A person who—
(a) participates in a pyramid scheme ”

“ One third of the population was heavily involved in a series of heavily leveraged investment plans, which collapsed almost simultaneously. Inept political and financial crisis management led Albania to the verge of disintegration into civil war.
But why must pyramid schemes fail? Why can't they continue forever, riding on the back of new money and keeping every investor happy, new and old?
The reason is that the number of new investors – and, therefore, the amount of new money available to the pyramid's organizers – is limited. There are just so many risk takers. ”

“ Ponzi and pyramid schemes have been a fixture of Western civilization at least since the middle Renaissance. Assets tend to accumulate in "asset stocks". Residences built in the 19th century still serve their purpose today. The quantity of new assets created at any given period is, inevitably, negligible compared to the stock of the same class of assets accumulated over decades and, sometimes, centuries. ”

“ Investments by households are only one of the engines of this first kind of asset bubbles. A lot of the money that pours into pyramid schemes and stock exchange booms is laundered, the fruits of illicit pursuits. The laundering of tax-evaded money or the proceeds of criminal activities, mainly drugs, is effected through regular banking channels. The money changes ownership a few times to obscure its trail and the identities of the true owners. ”

“ You start a trust company, and you get out imposing advertisements, and promise high rates of interest, and the public comes in. Then you hypothecate your stock in company number one, and you have your dummy directors lend you more money, and you buy another trust company. They call that pyramiding—you have heard the term, no doubt, with regard to stocks; it is a fascinating game to play with banks, because the more of them you get, the more prominent you become in the newspapers, and the more the public trusts you. ”

“ Moreover, despite decades of bitter experiences - from Mexico in 1982 to Asia in 1997 and Russia in 1998 - financial institutions still bow to fads and fashions. They act herd-like in conformity with "lending trends". They shift assets to garner the highest yields in the shortest possible period of time. In this respect, they are not very different from investors in pyramid investment schemes. ”

“ The market rose to such heights that the selling price of securities listed on the New York Stock Exchange—to say nothing of the untold billions listed on other exchanges—reached a figure far in excess of all the money in the world. Though it was reiterated time and time again that customers’ accounts with brokers were amply protected, they were of course margined with other securities, and thus the pyramid grew until it staggered the imagination even of those who built it. ”

“ Their fathers saved, and they enjoy; or they employ a part of the accumulation in the purchase of the labour of others, by which means their riches still further increase. The pyramid rises. But the descendants of those fathers who had consumed the product of their labour, they bring no postponed claim into the market. These are they who must sell their labour. They must work for the children of those who had saved. Our pyramid broadens at the base. This perpetual value given to money has enabled the man of one generation to tax all ensuing generations with the support of his offspring. ”

“ At each stage in the process the smaller competitors are eliminated, and the larger driven to increase their size so that the whole may be illustrated by a pyramid, the base or first stage of which consists of a larger number of small units, and each higher stage of a smaller number of larger units, with a Trust or Monopoly Syndicate for its apex. ”

“ Schemes that require millions of money as a first outlay, and before any profits can be hoped to be realised, are discussed with the utmost sang-froid by the merchants on Change, that is, at a large elegant building, set aside and built expressly for merchants to congregate and transact business. If the scheme is approved of to-day by a number of leading merchants, and the sum requisite be five millions sterling, by this day fortnight, at latest, the money is contributed and safely lodged in the banker’s hands. ”

“ In my experience in cases involving the high-tech sector, the easiest way to define the relevant market is to figure out how the firm at issue monetizes its intellectual property or innovation. How does Google monetize its searches? How does Apple monetize its apps and iTunes? How does Facebook monetize public profiles? And so on. Identifying how firms monetize their bread and butter enables the agencies to zero in on who the customers are, whether there is competition, and whether the absence or potential absence of competition is a result of business acumen or anticompetitive conduct. ”

“ The very atom of antitrust thinking - the firm - has changed in the last two decades. No longer hierarchical and rigid, business resembles self-assembling, nimble, ad- hoc networks of entrepreneurship superimposed on ever- shifting product groups and profit and loss centers.
Competition used to be extraneous to the firm - now it is commonly an internal affair among autonomous units within a loose overall structure. ”

“ The relative advantage of the intellectual property corporation does not consist exclusively in its technological prowess. Rather it lies in its vast pool of capital, its marketing clout, market positioning, sales organization, and distribution network.
Nowadays, anyone can print a visually impressive book, using the above-mentioned cheap equipment. But in an age of information glut, it is the marketing, the media campaign, the distribution, and the sales that determine the economic outcome. ”

“ Or to expect that the business should yield fair returns on the capital, Mr. Rowe? Is it unusual when the early period of a new business requires increasing investments with a growing burden of compounding interest, all of which are returned and multiplied when the business becomes established and its turn-over regular?"
"Theory, Miss Foraker. You're trying to apply very fine-sounding phrases to an enterprise which hasn't been proven. A real business does not refuse to sell its products when they're ready for market and when the firm is embarrassed by the demands of its creditors, you know." ”

“ People know that this is highly improbable and that the likelihood that they will lose all or part of their money grows with time. But they convince themselves that the high profits or interest payments that they will be able to collect before the pyramid collapses – will more than amply compensate them for the loss of their money. ”

“ For wherever Church goes, money isn’t far behind: surely there’s a financial aspect to this business with the ride.
UPDATE:
Indeed there is: further anonymous tipsterism reveals that papers have been filed to create a “co-operative” structured like a classic Ponzi scheme, in which franchise operators of the ride are expected to pay membership dues further up the ladder. All the romance of Church’s accounts will certainly find a fresh batch of suckers—if there’s one thing we know about Suzanne Church, it’s that she knows how to separate a mark from his money. ”

“ To keen-eyed business men engaged in the thick of large-scale competition it becomes increasingly clear that good profits can only be obtained in one of two ways. A successful firm must either be in possession of some trade secret, patent, special market, or such other private economy as places it in a position of monopoly in certain places or in certain lines of goods, or else it must make some arrangement with competing firms whereby they shall consent to abate the intensity or limit the scope of their competition. ”

“ And as these specially qualified dealers can for the most part lend much more than their own capital, they will always be ready to borrow largely from bankers and others, and to deposit the securities which they know to be good as a pledge for the loan. They act thus as intermediaries between the borrowing public and the less qualified capitalist; knowing better than the ordinary capitalist which loans are better and which are worse, they borrow from him, and gain a profit by charging to the public more than they pay to him. ”

“ These shrewd financiers, raised a great outcry against combinations among producers to increase the price of products by using interchangeable certificates of deposit instead of money, in the transaction of business. The people were using the same methods for the improvement of their own financial condition that had been used so successfully by monopolists for their impoverishment, and the Patrons demanded that all the laws that had been enacted in favor of monopoly should remain on the statute books. ”

“ The weaver never thought that he could get up a new pattern, buy materials and devise a scheme whereby one man could tend four looms—or fourteen—and advertise his product so the consumer would demand it, and thus force the merchant to buy.
Aye, and if that didn't work, the whole blooming bunch of middlemen who batten and fatten between the factory and the family could be eliminated, and the [Pg 268] arrogant retailer, wholesaler, factor and agent be placed on the retired list through the Mail-Order Plan. ”

“ When we calmly reflect on the monastic institution, and observe the financial principles on which it is organized, the variety and prodigious traffic which has distinguished its career, the immense treasure and domains it has acquired by fraud and artifice, it seems like some gigantic financial corporation, projected for speculating in land, and for making money by the tricks of trade. ”

“ The company referred to in this letter was one proposed by Cyrus W. Field and other capitalists of New York. The plan was to purchase the patent rights of Morse, Kendall, Vail, and F.O.J. Smith, and, by means of the large capital which would be at their command, fight the pirates who had infringed on the patent, and gradually unite the different warring companies into one harmonious concern. A monopoly, if you will, but a monopoly which had for its object better, cheaper, and quicker service to the people. ”

“ Every one of these minor firms claimed and received the privilege of drawing bills on Pizzituti, Turlington & Branca for amounts varying from four to six thousand pounds—on no better security than a verbal understanding that the money to pay the bills should be forwarded before they fell due. Competition, it is needless to say, was at the bottom of this insanely reckless system of trading. The native firms laid it down as a rule that they would decline to transact business with any house in the trade which refused to grant them their privilege. ”

“ The insiders have a new scheme—the best yet; it's like a Gatling gun against bows and arrows. They organise a syndicate, and get the franchises for nothing, and then sell them to the company for millions. They've even sold franchises they didn't own, and railroad lines that hadn't been built. You'll find some improvements charged for four or five times over, and the improvements haven't yet been made. First and last they have paid themselves about thirty million dollars. And, in the meantime, the poor stockholder wonders why he doesn't get his dividends! ”

“ In my country when trusts are formed a great number of persons suffer, whether the general consumer does or not—many small dealers, middle men, drummers and general employees. The small dealer is driven out of the business by underselling. The middle man is frequently ignored, the trust dealing directly, or nearly so, with the consumer. The drummer is discharged because, competition having disappeared, custom must come without solicitation. ”

“ For several years the public, now restored to high prosperity, observed with interest, awe, even with pride the appearance of those vast anonymous shapes which capital by a headlong impulse had been raising up to control production and transportation. Mergers, combines, trusts,—they came in endless succession. Hardly a day passed without a new sensation in phantasmic millions. People were seized with a gambling mania. Each day promoters threw an enormous mass of new and unseasoned securities upon the market, and they were frantically bought, as if the supply were in imminent danger of failing. ”

“ The only exercise of power by a Trust or Monopoly in its dealings with competing capital which deserves to be placed in a separate category of infamy, is the use of money to debauch the legislature into the granting of protective tariffs, special charters or concessions, or other privileges which enable a monopoly company to get the better of their rivals, to secure contracts, to check outside competition, and to tax the consuming public for the benefit of the trust-maker's pocket. ”

“ The cotton-seed oil mills of the South, once held by private owners, are now in the hands of a trust whose certificates are quoted on the stock-exchanges, and are held only by men of large capital, or by stock gamblers. This is a typical example of the change which is everywhere occurring. Private enterprise gives way to the stock company, and that in turn gives way to the trust. The salient fact, then, we may express in similar terms to those of our first law of competition, as follows: The congestion of wealth tends to increase inversely with the number of competing units. ”