pyramid scheme
Prohibited under the Danish Collections Act § 5: profits funded by new participants
A pyramid scheme is a pyramid-structured arrangement in which participation requires a financial contribution and participants are enticed by the prospect of a profit — a profit that, however, derives mainly from the contributions of new participants rather than from genuine production or value creation. The model is structurally unsustainable: it can only function as long as new participants are continuously recruited, and it inevitably collapses once the inflow of new contributions ceases.
Under Danish law, pyramid schemes are prohibited by the Danish Collections Act (indsamlingsloven) § 5. The prohibition targets precisely the construction in which the profit does not stem from a legitimate commercial activity, but instead from an ever-growing base of new participants who finance the returns paid to those who entered earlier.
In practice, pyramid schemes are often camouflaged as investment products, trading platforms or cryptocurrency projects in order to give such arrangements an appearance of legitimacy. The OneCoin case is a central example: the cryptocurrency OneCoin, created by Ruja Ignatova, met the classic hallmarks of a pyramid scheme, in that the contributions of new participants largely financed the returns to existing participants, while the underlying technology and the claimed values could not be documented.
It is precisely the combination of the pyramid-shaped recruitment system, the mandatory contribution and the structural dependence on an inflow of new capital that legally defines a pyramid scheme and distinguishes it from lawful forms of investment.
