There is no actual investment activity in a Ponzi scheme; it is simply like taking a loan to pay another loan. The lifeblood of a Ponzi scheme is a new investor and when it eventually becomes difficult to recruit new investors or when a large number of investors ask to cash out, the whole thing collapses. Ponzi schemes use a formula known as a three-by-four matrix. For example an investor pays P500 to the promoter and is told to build a "downline" by recruiting three new members, who then each should recruit three more members. The investor is told that he will be paid P150 for each of the three members whom he enlists at the first level. The investor is also promised a P30 commission for each recruit at the next three levels.
Thus, the investor should receive commissions for four levels of recruits below him, each of whom must recruit three more members, hence the name -- a three-by-four matrix.To the potential investor/recruit this may look like a very appealing opportunity. The pyramid promoter is likely to persuade the investor that he is "getting in early" and that he should consider himself at the top of the matrix. From this perspective, it appears that he can earn P3,960 on an investment of P500, a whopping 792 percent return. You can do the math easily: P150 from the first level of 3 recruits is P450; P30 from the next 3 levels of recruits is P270 (P30 x 9), plus P810 (P30 x 27), plus P2,430 (P30 x 81). The very structure of this matrix dictates that whenever the collapse occurs, at least 70 percent will be in the bottom level with no means to make a profit.
