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A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered.
Pyramid schemes are illegal in many countries, including the United States, the United Kingdom, France, Germany, Canada, Romania, Colombia, Malaysia, Norway, Bulgaria, Australia, New Zealand, Japan, Nepal, Philippines, South Africa, Sri Lanka, Thailand, Iran, and the People’s Republic of China.
Pyramid schemes exploit greed and gullibility. A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula. The essential idea is that the mark, Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the business expands. In this regard, pyramid schemes bear a strong resemblemce to Ponzi schemes, named after Charles Ponzi.
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Financial commentators let loose on the US financial system Tuesday as more firms announced losses in the suspected multi-billion-dollar swindle run by ex-Wall Street heavyweight Bernard Madoff.
Four Japanese financial firms joined the growing list of those caught up in the scandal that already includes some of the world’s largest banks.Aozora Bank said its exposure might amount to 12.4 billion yen (137 million dollars, 101,000 million euros).
Several Japanese insurers, including Nipponkoa Insurance Co. and Mitsui Sumitomo Insurance Co., also said they might have lost money, while Daiwa Securities Group said was caught up in the alleged scam.
The latter three firms stressed, however, that their losses were expected to be at most several hundred million yen — relatively small sums compared to the sums announced by some major banks on Monday. Spain’s biggest bank Santander announced exposure of more than three billion dollars to Madoff Investment Securities in New York, sending its shares plunging.
“The supposed meticulous supervision by the SEC has failed in the task of preventing massive fraud,” Spanish newspaper El Pais said Tuesday. “It must asked how it is possible that no one had detected anything abnormal about his (Madoff’s) activities,” said the newspaper La Vanguardia.
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