- Q: What is Pyramiding?
A: The pyramid scheme is essentially a business variation of the
familiar "chain letters". It is called "pyramid" because the promoters
are always at the top of the pyramid-shaped flow of money. Money
coming from the later investors flows upward to the top. Being
at the top may result in receiving a lot of money quickly. There
are three elements to a pyramid scheme, namely: a) a participant
pays money to the promoters; b) that payment entitles participant
to recruit others to the scheme; c) the other participants are
induced to make payment because they are told they will receive
a benefit in respect of the introduction of those others to the
The scheme is basically deceptive because it is premised on the
false assumption that all participants could recoup their large
investments in the plan simply by recruiting additional participants.
Representations used to promote pyramid schemes often emphasize
the quick and sizable profits but what is not disclosed is ultimately,
as the universe of petential recruits diminishes or exhausted,
or the point of rejection is reached, the scheme collapses with
many late entrants losing their investments.
- Q: What is the Department of Trade and Industry's
A: DTI can take action under two (2) existing laws, namely:
- Republic Act No. 7394 Consumer Act of
Article 53 under Title III on Protection Against Deceptive,
Unfair and Unconscionable Sales Acts or Practices in relation
to Article 4(k) of Republic Act 7394 relates to pyramid selling
and the specific text read as follows: Article 53. Chain Distribution
Plans or Pyramiding Sales Schemes. Chain distribution plans
or pyramid sales schemes shall not be employed in the sale
of consumer products.
Article 4 (k) "Chain Distribution Plans" or "Pyramid Sales
Schemes" means sales devises whereby a person, upon a condition
that he makes an investment, is granted by the manufacturer
or his representative a right to recruit for profit one or
more additional persons who will also be granted such right
to recruit upon condition of making similar investments: Provided,
that the profits of the person employing such a plan are derived
primarily from the recruitment of other persons into the plan
rather than from the sale of consumer products, services and
credit: Provided, further, that the limitation on the number
of participants does not change the nature of the plan.
The test in determining whether or not there is a violation
of this particular provision of law is, "Does the scheme involve
putting up of investment (entry fee and purchase of goods,
or purchase of goods alone) for the opportunity to receive
earnings derived primarily from recruiting, rather from sales?
If the answer is yes, then there is a violation. Otherwise,
there is none.
Simply put, what the law prohibits is the use of the pyramid
scheme in the sale of consumer goods where recruitment is
the main source of earnings.
Pyramiding or chain distribution scheme should not be confused
with network or multi-level marketing which is a legitimate
marketing strategy designed to generate an increase business
- ACT 3883 As Amended - Business Name Law
As implemented by the Department of Trade Administrative Order
(DTAO) No. 80, series of 1982 particularly Sec. 12 (d), DTI
is empowered to effect,
"Cancellation or revocation of any license or permit to
engage in the business xxx which does not conform with the
registered business name or style."
Nowhere in this Act can we find a provision that directly
relates to the scheme. However, it has been used to pin down
and to ultimately stop the operation of pyramiding entities
(sole proprietorship) registered with DTI who are taking advantage
of the Business Name Registration System (BNRS) by misrepresenting
the Business Name Registration Certificate (BNRC) as a permit
in a desperate move to give legal semblance to their fraudulent
activity. When the business name registered is not consistent
with the nature of business or activity, there is a violation
of the business name law, which deserves prosecution and appropriate
penalties like revocation or cancellation of business name.