SchneeballSysteme

SchneeballSysteme, commonly rendered in English as snowball systems or pyramid schemes, refer to a class of business models in which participants’ earnings depend primarily on recruiting new members rather than on the sale of a genuine product or service. New entrants pay an entry fee or purchase a substantial package; existing participants earn commissions from the money paid by those they recruit, and often a portion of payments by recruits further down the line. The scheme relies on an ever-expanding pool of participants; payouts to earlier entrants are funded by newer ones.

When recruitment slows or stops, the scheme collapses, leaving later entrants with losses while those at the top may profit. SchneeballSysteme are illegal or strictly regulated in many jurisdictions and are typically prosecuted as fraud or criminal misrepresentation. In Germany and many EU countries, such structures are treated as unlawful pyramid or investment schemes, and consumer protection agencies warn against involvement.

Although some schemes disguise themselves as legitimate multilevel marketing programs, the defining feature of SchneeballSysteme is that profits come from recruitment rather than sustained product value or service revenue.

Impact and risks: participants at the bottom typically lose their investment; earlier participants may have profited, creating a misleading impression. Regulators emphasize due diligence and warn that promises of high returns with little risk are a red flag.

Prevention and signs: high pressure to recruit, guaranteed or high returns, complex or opaque compensation plans, significant upfront fees, lack of verifiable product or service value, and limited or no independent audits.