A Case Study of Pyramid Scheme Finance Flow Network Based on Social Network Analysis

Abstract

(1) Background: The pyramid scheme has caused a large-scale plunder of finances due to the unsustainability of its operating model, which seriously jeopardizes economic development and seriously affects social stability. In various types of networks, the finance flow network plays an extremely important role in the pyramid scheme organization. Through the study of the finance network, the operational nature of pyramid scheme organizations can be effectively explored, and the understanding of pyramid scheme organizations can be deepened to provide a basis for dealing with them. (2) Methods: This paper uses the motifs analysis and exponential random graph model in social network analysis to study the micro-structure and the network construction process of the “5.03” pyramid scheme finance flow network in Hunan, China. (3) Results: The finance flow network is sparse, the microstructure shows a typical pyramid structure; finance flows within the community and eventually flows to the most critical personnel, there is no finance relationship between different communities, and there are few finance relationships between pyramid salesmen of the same level. The inductees are in a key position in the network, which may explain why they are transferred to prosecution.

Study of the Mechanism for the Implementation of Crimes Related to Pyramid Schemes and Methods of Their Prevention

“…In Kazakhstan until the adoption of the new Law of the Republic of Kazakhstan No. 292-VI ZRK "On amendments and additions to certain legislative acts of the Republic of Kazakhstan on improving criminal, criminal procedure legislation and strengthening the protection of individual rights" 12 the establishment and management of a financial (investment) pyramid scheme (para. 3 par.…”

Mining trading patterns of pyramid schemes from financial time series data

“…We use a real-world trading data set, relating to a pyramid scheme organization, from a security institution in China. The operational organism of this specific pyramid scheme case is discussed comprehensively in [1]. In brief, the participants must spend 3800 yuan to 69,800 yuan to purchase 1-21 virtual products (so as to qualify for membership), and all members are organized into 5 levels for collecting dues and receiving rebates.…”

“…A pyramid scheme generally refers to a hierarchical business model that recruits members via a promise of payments or service for enrolling others into a scheme, rather than supplying investments or sale of products [1]. This model can be used to commit fraud by funneling money from bottom to the top of the pyramid.…”

“…The micro-structure and the network construction process of the pyramid scheme is researched by analyzing its finance flow network in [5]. In anomaly detection, classifiers for detecting abnormal nodes [6] and communities [1] are designed based on the characteristics in their financial data. These studies have deepened our understanding of the pyramid Fig.…”

Financial literacy and awareness of investment scams among university students

“…The Securities Commission Malaysia announced that they have received 370 queries and complaints on illegal investment scams as of September 2020 compared with 317 for the whole of 2019 with a reported loss of RM914 million. This problem is expected to continue due to the rapid and large-scale use of multimedia and internet (Tessuto et al , 2020; Feng et al , 2019).…”