Legal Definitions - chain-referral scheme

A chain-referral scheme is a type of pyramid scheme where a person pays to join a program and receives compensation for introducing new people to the program. The person also receives compensation when those new people introduce others to the program. This creates a chain of people who are all paying to join and trying to recruit others to join as well.

For example, let's say John pays $100 to join a chain-referral scheme. He is then encouraged to recruit others to join the program and is promised a commission for each person he brings in. If John recruits Jane, he will receive a commission when she pays to join. If Jane then recruits Tom, John will also receive a commission when Tom pays to join. This continues down the chain, with each person trying to recruit others to join and earn commissions.

Chain-referral schemes are illegal in most states because they are considered a form of fraud. They rely on constantly recruiting new members to keep the scheme going, and eventually, there are not enough new members to sustain it. This means that most people who join a chain-referral scheme will lose money, while only a few at the top of the chain will make a profit.