A “pyramid scheme”, as defined by Cornell Law School’s Legal Information Institute, is “an unsustainable, illegal business model where investment returns are typically from principals [sic] of investments or membership fees instead from the underlying investment gains”. To put it simply, it’s a business model where you’re paid directly from the people who you recruit below you, rather than from a product that you sell or the value of your investment increasing.
Pyramid schemes have long been banned as an illegal practice in the US and elsewhere around the world, in part due to the losses of entrants stuck at the bottom. Various companies in the United States have been sued for operating as pyramid schemes.
These types of schemes are WAY popular, especially in the United States for a variety of reasons, but chief among them are 1) the desire to make “easy” money and/or 2) gaining financial stability.
The Specter of COVID
The pandemic, along with the response to it on both the national, state, and local levels have wrecked absolute havoc on many people’s finances. With many facing layoffs, possible foreclosure, and defaults on various debts, people have been searching for ways to make money in a weakened job market. Amidst these conditions, these types of schemes and scams have flourished.
The Looming Pyramid Scheme
Call it a gifting circle, a blessing loom, or “sou-sou”, this type of financial arrangement is most DEFINITELY a pyramid scheme (and can be called out as such without fear of being sued).
I should make a quick note on the sou-sou as it is a legitimate form of financial arrangement, originating in West Africa and the Carribean. However, scammers have used the sou-sou to create a pyramid school. The main difference between a real sou-sou and the pyramid scheme we’ll be talking about soon is this: a real sou-sou is often a closed group where no profit is to be made. A fake sou-sou is open, encourages recruitment, and promises profit.
This scheme started to resurface around late 2019 and middle of 2020 (or at least gained notoriety) and spread rapidly across social media platforms, including Facebook and Twitter. It essentially works like this:
You happen to see a post on your feed (or maybe receive a direct message, or “DM”) about this special way to make extra cash. They talk up how their friends are somehow turning $100 into $800. The post also includes a special segmented circle with names already filled in.
This circle with all the names in it is called a “loom” and when you join, you are paying money up front (to the person at the center of the loom) to have your name placed in one of the spots. You then try to get others to join in until the loom is filled (the 8 spots on the outside filled in). At which point, the person at the center gets their pay out ($800 for a $100 buy-in), the loom splits off and the next two names directly outside the center become their own looms.
Starting to see the picture? No? Let’s actually look at the loom from another perspective.
Look what we have here? That right there looks like a pyramid. If you’ve been on this planet long enough, say the 1980’s, you’ll remember a little something called the airplane game, where a “captain” would try to recruit “co-pilots” and a “crew”. When 8 “passengers” were recruited (and paid in), the co-pilots would become captains, and they’d try to recruit their own crew/passengers. These schemes died out soon after and it is from this scheme, where the loom derives its origins. To put it plainly, this IS the airplane game, given a new name and trotted out as a way to make a quick buck during hard times.
MLMs might technically not be a pyramid scheme, but the loom absolutely IS one. If you are solicited about being part of a loom, it’s best to ignore this one. Trust me, your wallet will thank you.