Legal Definitions - endless-chain scheme

An endless-chain scheme is another term for a pyramid scheme. It is a fraudulent and illegal business model that promises participants high returns, often quickly, primarily for recruiting new members rather than for selling genuine products or services to actual consumers.

The core characteristic of an endless-chain scheme is its reliance on a continuous, exponential expansion of new recruits. Participants typically pay an initial fee or make an investment to join. Their earnings are then contingent on their ability to recruit new individuals who also pay to join, forming a "chain" or "pyramid" structure. Money flows from new recruits up to those who recruited them, rather than from the sale of goods or services. Because an infinite supply of new recruits is mathematically impossible, these schemes are inherently unsustainable and inevitably collapse, leading to financial losses for the vast majority of participants, especially those at the lower levels of the structure.

Here are some examples illustrating an endless-chain scheme:

• Example 1: The "Investment Club"

  Imagine a new online platform called "Wealth Multipliers" that claims to offer exclusive access to high-yield investments. To join, individuals must pay a $500 membership fee. The platform promises that members can earn a 20% return on their initial investment within a month, but only if they successfully recruit three new members who also pay the $500 fee. The primary focus of all promotional materials and member training is on recruitment strategies, with very little discussion about actual investment products or market analysis.

  How this illustrates the term: This is an endless-chain scheme because participants pay a fee ($500) to join, and their ability to earn money (the promised 20% return) is directly tied to their success in recruiting new members. There is no genuine product or service being sold; the "investment" is merely the entry fee of new recruits. The scheme relies on an ever-expanding base of participants, which is unsustainable and will eventually leave most members at a loss.

• Example 2: The "Digital Product Reseller"

  A company markets a "revolutionary" digital marketing course. Individuals are encouraged to purchase the course for $2,000, which grants them the right to resell the course to others and earn a commission. However, the vast majority of the marketing and training materials provided by the company focus not on how to use the digital product to build a legitimate business, but rather on how to recruit new "resellers" to buy the course themselves. The highest earners are those with the largest "downlines" of recruited resellers, not those who effectively use or sell the course to end-users outside the scheme.

  How this illustrates the term: Although there is a "product" (the digital course), the scheme functions as an endless chain because the primary method of earning significant income is through recruiting new participants who also purchase the right to resell, rather than through the genuine sale of the course to consumers who intend to use its content. The value is derived from the recruitment chain, not the intrinsic value or widespread demand for the digital product itself.

• Example 3: The "Gifting Circle"

  A group on social media promotes a "Blessing Loom" or "Gifting Circle" where participants are asked to contribute $100 as a "gift" to someone at the center of a diagram. They are told that once they recruit two new people who also contribute $100, they will move closer to the center and eventually receive $800 in "gifts" themselves. There is no product or service exchanged, only the movement of money between participants based on recruitment.

  How this illustrates the term: This is a clear endless-chain scheme. Participants pay money ($100) to join, and their ability to receive a return ($800) is entirely dependent on the recruitment of new participants into the lower levels of the "loom." There is no underlying economic activity or product; it is purely a transfer of money from new recruits to earlier participants, making it an unsustainable and illegal pyramid structure.