A pyramid scheme is designed to pay off its earliest investors. True or False?

A pyramid scheme is indeed designed to pay off its earliest investors. The structure of a pyramid scheme relies on the recruitment of participants; funds from new investors are used to pay returns to earlier investors. This creates an illusion of a profitable investment as long as new participants keep joining and contributing money. However, such schemes are inherently unsustainable. Eventually, the scheme collapses when it becomes impossible to recruit enough new investors to pay the earlier ones, leading to significant losses for those who join later.

This understanding illustrates why it's important to recognize the characteristics that define pyramid schemes, particularly their reliance on a continuous influx of new participants to sustain payouts. As soon as recruitment slows down or stops, those at the bottom of the pyramid lose their investment, while those at the top benefit, thereby reinforcing the concept that early investors are typically the ones who see returns.