Pyramid Scheme

  • “An organization like this one relies on constant, ever-growing premium volume, so it can cover and pay for the deficits,” said W. O. Myrick, a retired chief insurance examiner for Louisiana.
    • If A.I.G.’s incoming premiums shrink, he warned, “the whole thing’s going to collapse in on itself.”

2009 0731 - NYT - After Rescue, New Weakness Seen at A.I.G., by Mary Williams Walsh - [link]

  • (p1) - Frank E. Moss (D-UT) - Today we will look into the strange and disturbing world of the fast buck pyramid sales scheme.
    • Untold hundreds of small investors have been bilked out of hard earned savings by the fast talking operators of these get rich quick schemes. 

1974 0710 - GOV (Senate) - Pyramid Sales, Frank E. Moss (D-UT)  --- [BonkNote]    --- [PDF-xp-GooglePlay]

  • 2004 0114 - Letter - FTC to Direct Selling Association - re: Pyramid Scheme Analysis, Federal Trade Commission - 3p
  • 2004 0316 - re: Equitable - HOUSE OF COMMONS - MINUTES OF EVIDENCE - TAKEN BEFORE TREASURY COMMITTEE - [link]
    • Q569 Angela Eagle: It is an extraordinary story to see what happened in the Society as shown by Lord Penrose, which surely must have some lessons. We had a Society where certain leading members of it decided to behave in this way and dissipated entirely the Society's reserves in going for growth and pursuing business. They almost became like a pyramid scheme over time. We had a board that, in Lord Penrose's words, at no stage fully got to grips with the financial situation, which was too fragmented, had collective skills which were inadequate for the task, no effective arrangements for ensuring that there was detailed examination, or none that were reported to the Board. We then had policyholders not being told about this approach to fund management which was "fairly novel", let us put it that way, and almost like being a bank without having any reserves. Policyholders were not told, between 1983 and 1986, that this approach to asset management had been adopted. This was and is a mutual society. Could this have happened if there had been shareholders rather than policyholders? What implications are there for regulation of mutuals in order to prevent this extraordinary state of affairs from developing again
  • 1998 0513 - FTC / IMF - Statement of Debra A. Valentine, General Counsel of the FTC, on “Pyramid Schemes,” presented at the IMF Seminar on Current Legal Issues Affecting Central Banks - 9p
  • 1999 - IMF - Book - Chapter 16 - Pyramid Schemes, by Debra A. Valentine, FTC -Current Developments in Monetary and Financial Law, Vol. 1 - [30p-Download-link]
    • With the exception of a few areas like air travel and insurance, the Commission has broad law enforcement authority over virtually every sector in our economy.
  • Market value accounting presents the real economic "worth" of the insurance operation, and shows how that worth can and does change when the external environment changes.
    • This information is valuable on a going concern basis as well as on a sale or liquidation basis, since an insurance company cannot be managed indefinitely as a pyramid scheme.

--  Joseph J. Buff, Research Associate with Morgan Stanley

1986 - SOA - Corporate Modeling and Forecasting (Practical Aspects of the Valuation Actuary Recommendations), Society of Actuaries - 42p

  • Last point: This is one that I’m making in honor of my good friend, Bob Myers, who is a name that probably all of you know. Bob gets very, very upset, I think rightly so, when Haeworth refers to Social Security as a Ponzi scheme.
  • Bob makes the point, and I think it’s a valid one, that Ponzi schemes require ever increasing numbers of participants.
    • If you don’t have more and more people coming in all the time, then the Ponzi scheme goes broke. It’s a pyramid scheme like they had in Albania.
    • Ponzi schemes can’t survive because, obviously, there’s a finite number of people on the planet. Social Security, on the other hand, would be all right if it just had stable numbers of participants.
    • If the ratio of workers to beneficiaries was just stable, it would be OK. But it’s not stable; it’s declining.
      • And it’s declining rather precipitously.
      • That’s going to be a problem.
    • There’s not too much we can do about it, except import a lot of people from other countries or something like that. Which may well be the answer. 

--  Bruce D. Schobel, New York Life Insurance Company

1997 - SOA - Social Security and Medicare—What Does the Future Hold?, Society of Actuaries - 23p

  • Michael, your situation you were describing in Egypt sounded exactly like a classic pyramid scheme.
    • As an actuary for small defined benefit plans, I’m concerned about being a fiduciary. What can I do to make sure I avoid being a fiduciary, am I one per se, or are there some things that I do that make me one, other things I can avoid doing to avoid being one?
  • [Bonk: Michael = Michael Sze]

--  From the Floor

2003 - SOA - Sponsors’ Risk Management and Fiduciary Risk, Society of Actuaries - 15p

  • 1968 0304, 05, 20, and 21- GOV (Senate) - Door-to-Door Sales Regulation, Warren G. Magnuson (D-WA)
    • [PDF-347p-GooglePlay]
    • Direct Selling, 
    • (p133) - THE RIGHT OF FREE MEN TO ENGAGE IN LEGITIMATE BUSINESS, By National Better Business Bureau, Inc., New York, N.Y.
      • The right of free men to engage in legitimate business is exemplified by the door-to-door salesperson who is so familiar a part of the contemporary American scene.
      • DIRECT SELLING IS LOCAL BUSINESS - Aside from these independent salesmen, a surprising number of established local business firms of an average community use direct selling methods. They include: Insurance agents and agencies
    • (p) - NALU - NATIONAL ASSOCIATION OF LIFE UNDERWRITERS,  March 29, 1968 - DEAR SENATOR MAGNUSON : As an association of more than 100,000 life and health insurance agents, we would like to take this opportunity to express our views on S. 1599, the "Door- to- Door Sales Act.
    • Senate - Committee on Commerce - Consumer Subcommittee
  • 1974 0710 - GOV (Senate) - Pyramid Sales, Frank E. Moss (D-UT)
    • [PDF-xp-GooglePlay]
    • (p1) - Frank E. Moss (D-UT) - The subcommittee will come to order. Today we will look into the strange and disturbing world of the fast buck pyramid sales scheme. Untold hundreds of small investors have been bilked out of hard earned savings by the fast talking operators of these get rich quick schemes. 
    • (p1) - Frank E. Moss (D-UT) - The bill which we will consider is S. 1939, introduced by Senator Mondale of Minnesota, and co-sponsored by 10 senators, among them the Chairman of the full committee and the Chairman, Vice-Chairman and ranking minority member of this subcommittee.
      • This indicates some of the concern that is felt in legislative circles on this matter of pyramid sales which are used to swindle people who are gullible.
    • Senate - Committee on Commerce - Subcommittee for Consumers 
    • S. 1939 - To Prohibit Pyramid Sales Transactions, and for Other Purposes
  • (p172) - Like all savings institutions, life insurance companies compete for a share of the consumer's dollar, with the implicit intention of diverting income into the capital market.
    • The principal asset producing contracts under which life insurance is sold are long-term and they tend to accumulate funds for investment in a very stable, rising trend.
    • The essential instrument in this accumulation is the level premium which produces reserves in the early policy years to offset the higher mortality costs as the policies age.
  • I am sure the committee does not want me to go into detail on the arithmetic technicalities of level premiums, but you should know that an increase in the net sales of life insurance is necessary to maintain the upward thrust of fund accumulation and asset growth to cover reserves.
    • One precent a year is not quite enough to do this on a year-in and year-out basis in an established company.
    • Five percent, however, does quite nicely, and 10 percent produces really spectacular results.
  • ...
  • To overcome this arithmetic, the companies must sell additional
    issues each year and the net sales trend must be upward.

--  Statement of Orson H. Hart, Vice President and Director of Economic Research, New York Life Insurance Co. 

1968 0508/0509/0515/0516 - GOV (JEC) - Standards For Guiding Monetary Action. William Proxmire (D-WI) - [PDF-319p]

  • Albania
  • 1999 - IMF - The Rise and Fall of the Pyramid Schemes in Albania, by Christopher Jarvis, International Monetary Fund - 36p
  • 2000 03 - IMF - The Rise and Fall of Albania's Pyramid Schemes, by Christopher Jarvis, March 2000, Volume 37, Number 1, International Monetary Fund - [link]
    • This article is based on Christopher Jarvis, 1999, "The Rise and Fall of the Pyramid Schemes in Albania," IMF Working Paper 99/98 (International Monetary Fund: Washington
    • During 1996-97, Albania was convulsed by the dramatic rise and collapse of several huge financial pyramid schemes. This article discusses the crisis and the steps other countries can take to prevent similar disasters.
  • 2023 0329 - TheRichest - The Pyramid Scheme That Ruined A Country - [VIDEO-YouTube]