What Companies Are Pyramid Schemes?

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Updated: April 2026 Oleksandr Honcharov, CEO at FlawlessMLM What companies are pyramid schemes? A company is a pyramid scheme when its revenue comes primarily from recruitment fees and mandatory purchases by participants, not from selling products to outside customers. Regulators like the FTC and SEC have shut down numerous companies for operating as pyramid schemes. High-profile cases include BurnLounge, Vemma, ZeekRewards, TelexFree, and OneCoin — all of which were found to be fraudulent. Companies That Were Shut Down as Pyramid Schemes BurnLounge (2007) — sold digital music packages. FTC found that income came from recruitment, not music sales. Shut down and ordered to pay $17 million. Vemma (2015) — sold energy drinks. FTC alleged it was a pyramid scheme because most revenue came from distributor purchases, not retail customers. ZeekRewards (2012) — operated as a Ponzi/pyramid hybrid. SEC shut it down with $600 million in losses. TelexFree (2014) — sold VoIP services. DOJ charged the founders with fraud. Over $1 billion taken from participants. OneCoin (2017+) — a cryptocurrency-based pyramid scheme. Founders were charged with fraud and money laundering across multiple countries. These companies shared common traits: no real product demand outside the network, income dependent on recruitment, and collapse when new participants stopped joining. Definition: Pyramid scheme companies are those whose revenue comes from recruitment fees and internal purchases rather than from legitimate product sales to outside consumers — and they are shut down by regulators when identified. If you want to know whether a specific company is a pyramid scheme, apply the same test every regulator uses: does the company make money from selling products to real customers, or from signing up new participants? That answer tells you everything.

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