http://www.consumeraffairs.govt.nz/s...h/pyramid.html
The main characteristic of a pyramid selling scheme is that earning money and gaining promotion within the scheme depends primarily on recruiting new people to the scheme, and those new people recruiting more people into the scheme, and these new people recruiting more people, and so on...
Pyramid schemes are unfair trade practices because they are likely to be unfair to most participants in the scheme, the rewards for those at the top come from those below, and because eventually it will become impossible to recruit the number of people needed to produce reasonable financial rewards to participants.
Example
In this example the scheme depends on each participant recruiting 6 new members into the scheme. The figure below shows how many people will need to have joined the scheme at each level, in order for those above to be paid.
1 6
2 36
3 216
4 1,296
5 7,776
6 46,656
7 279,936
8 1,679,616
9 10,077,696
10 60,466,176
11 362,797,056
12 2,176,782,336
13 13,060,694,016
The total population of the world is approximately 6.2 billion so after only 13 levels there's not enough people on the planet to keep the scheme going.
Schemes also include those that involve participants using an agent, provided by the scheme operators, to recruit others on their behalf, instead of having to recruit new participants themselves.
Pyramid selling schemes prohibited
Pyramid selling schemes are prohibited under the Fair Trading Act. The Act is enforced by the Commerce Commission. If you have been approached to join a scheme, which you suspect may be pyramid selling, we suggest you inform the Commerce Commission.
Individuals and corporations can be fined up to $200,000 for promoting, or operating a pyramid scheme. Offenders can also be required to pay an extra penalty based on the amount they have gained commercially from their involvement in the scheme.
Multi-level marketing v pyramid selling
Multi-level marketing usually involves commercially viable products (eg, clothing, jewellery, cosmetics, health products, cookware) which present genuine business and income-earning opportunities through repeat sales to clients.
Pyramid selling schemes often involve "gimmick" products (eg, certificates) or grossly overpriced products or services that have little or no resale value (eg, personal development programmes, magazine subscriptions).