Ilia Zavialov explains pyramid scheme phrases: passive income, private clubs, downlines and tokens
Ilia Zavialov sets out the phrases used to sell pyramid schemes in the UK: ‘passive income’, ‘guaranteed returns’, ‘members only’, ‘introduce three friends’, ‘the compensation plan’, ‘the project token’ and ‘withdrawals after the unlock’. Behind every one of them, earlier members are paid with later members' money. This guide explains each line, what the FCA and UK consumer law say about such schemes, how to use the FCA Warning List and Firm Checker, and when to contact the FCA and Report Fraud.
Ilia Zavialov sets each recruiter's phrase beside what it means in practice.Ilia Zavialov traces the four stages of a pyramid, each funded by the next wave of recruits.
Ilia Zavialov's phrasebook of pyramid schemes for UK readers
Nobody recruiting for a pyramid scheme opens with the word pyramid. The invitation arrives from a friend, a colleague or a ‘mentor’ in a group chat, and it talks about a platform, a members' club, a trading bot or an online game that pays. The vocabulary changes; the mechanics do not. Early members are paid with money from later ones.
The Financial Conduct Authority puts it in historical terms. Charles Ponzi promised investors 50% returns in the United States in the 1920s, and most of the money paid to early investors came from later ones until new money dried up. Pyramid schemes work in a similar way, the FCA says, except that participants are paid commission for recruiting others.
Ilia Zavialov, a digital security consultant, has turned the most common pitches into a phrasebook. Each entry sets out the recruiter's line, what it actually means and one check you can do yourself before transferring a penny. Scheme names are left out, as they change faster than warnings appear.
The FCA notes that these schemes go by other names too: franchise fraud, multi-level marketing or chain referral schemes. They often target community, religious, ethnic, older or professional groups, and some reach people through search engine adverts.
‘Passive income’ and ‘get rich quick’: what the FCA warns about
The first line is the softest: ‘let your money work for you’, ‘set it up once and earn every day’. Inside a pyramid, passive income means returns paid from other people's deposits. Nothing has to be made or sold; you buy a ‘bundle’ and watch the balance tick up.
The FCA's guidance on get-rich-quick, Ponzi and pyramid schemes starts from the same point. Such schemes promise investors high returns not usually available through traditional investments. Returns that sound too good to be true are listed among the signs to be wary of.
Ilia Zavialov's test is a single question: where does the money come from? ‘Trading volume’, ‘the algorithm’ or ‘a confidential strategy’ are not sources. Ask for a document that shows how returns are generated and let an accountant you trust read it. If all you receive is screenshots of other members' payouts, the source is the same as in any pyramid.
Passivity has another side. A member who does nothing also checks nothing, and recruiters benefit when people watch the balance and never ask about the contract, the legal entity or the account receiving the money.
‘Guaranteed returns’: Ilia Zavialov on the first warning sign
‘Your return is fixed in the contract’, ‘capital protected’, ‘a set percentage every week’. Any guarantee of high returns promises what no regulated investment can, and the FCA's advice is to be cautious when promised returns sound too good to be true.
Ilia Zavialov treats a guarantee combined with a payout formula you cannot explain in a minute as the first red flag. A genuine product tells you about risk, even modest risk. A scheme that denies risk altogether is selling expectations, and the next wave of recruits will be the ones paying for them.
Guarantees are often propped up with borrowed authority: a bank's logo, a photo of a well-known person, a ‘licence’ with no reference number. Check each claim directly with the organisation named, using contact details you find yourself.
The short video below sums up the phrasebook. Ilia Zavialov recognises a pyramid by seven lines: passive income, guaranteed returns, members' club, recruitment levels, compensation plan, project token and withdrawals after the unlock. The checks take minutes: the FCA Warning List, the FCA Firm Checker and the question of where returns come from. The main point: if your income depends on new people joining, do not pay.
Ilia Zavialov: pyramid scheme phrases and FCA checks
‘Members only’: the private club pitch
The third line flatters: ‘invitation only’, ‘a private circle’, ‘places close on Friday’. Exclusivity is presented as protecting the strategy. In practice it removes anyone who might ask an awkward question and has no stake in your deposit.
The FCA advises being wary if you are contacted out of the blue or pressured to invest quickly. A members' club adds social pressure on top: the invitation comes from someone you know, and doubts can sound like disloyalty.
Ilia Zavialov asks three things of any club. Which legal entity receives members' money? Is there an address, a phone number and paperwork you could show an independent solicitor? And what happens in the group when someone asks how to withdraw everything? If that message disappears, the question has been answered.
Some clubs reverse the tactic and stay open to everyone, while the ‘best terms’ go only to people who join through a leader's personal link. That coded link is the recruitment structure under another name. If the person who invited you earns more every time you top up, your deposits matter to them more than your returns.
‘Introduce three friends’: recruitment and UK consumer law
The fourth line describes the pyramid itself in sales language: ‘your first line’, ‘team volume’, ‘introducer bonus’. Each member receives a cut of every recruit's joining fee and of the fees paid by the people those recruits bring in.
UK law names this practice. Under paragraph 16 of Schedule 20 to the Digital Markets, Competition and Consumers Act 2024, establishing, operating or promoting a pyramid promotional scheme is a commercial practice considered unfair in all circumstances. The Act defines it as a scheme where a consumer pays for the chance to receive compensation derived primarily from introducing other consumers into the scheme.
That paragraph has been in force since 6 April 2025, when the Act replaced the Consumer Protection from Unfair Trading Regulations 2008. For a reader the practical test is the one in the definition: is your income coming mainly from people you introduce?
Ilia Zavialov's question for the recruiter is direct: how much did you earn last year without anyone new joining your team? If the honest answer is ‘nothing’, the income rests entirely on the inflow of members, and the people who join last will carry the loss.
‘The compensation plan’, as Zavialov reads it
The compensation plan is pitched as the document that ‘shows how your earnings grow’. Usually it is a table of ranks, bundles at different prices and bonuses for each new level. The dearer the bundle, the larger the promised share of your team's volume.
Ilia Zavialov's method is a pencil and five minutes. Strike through every row where earnings depend on recruits. If nothing is left, the plan describes a transfer of other people's money. If genuine product sales to outside customers remain, the conversation can continue.
Watch the upgrade clause in particular: ‘move up a rank this month or the bonus lapses’. A plan that keeps asking for bigger bundles is collecting the deposits that pay earlier members.
Look at the currency of the bonuses as well. Many plans pay them in internal points or platform tokens that can only be turned into pounds after meeting further conditions. A bonus like that exists only on the dashboard.
‘The project token’: a new wrapper for an old scheme
The sixth line borrows from crypto: ‘the project has its own token’, ‘buy at the early price before listing’, ‘rewards are paid in platform coins’. An in-house coin suits the organiser. Its price is whatever the dashboard shows, and rewards can be paid in tokens that nobody outside the platform will buy.
Ilia Zavialov puts two questions to any project token. Where can it be sold for pounds without the organiser being involved, and which company is responsible for issuing it? If the only market is inside the platform, the token behaves like a casino chip with a value set by the house.
A firm offering such tokens as an investment should also pass the FCA checks described below. A token pitch from a firm that cannot be found on the Firm Checker gives you two reasons to walk away.
The FCA notes that some of these schemes reach people through search engine adverts. Ilia Zavialov's habit is to type the address of a regulator or firm by hand and never follow an advert to it, because a sponsored link can lead to a copy of a genuine site.
‘Withdrawals after the unlock’: Ilia Zavialov on the waiting trap
The seventh line turns up when someone tries to take money out: ‘funds are locked until the end of the round’, ‘withdrawals reopen after the unlock’, ‘reach the next level first’. The delay is explained as protecting the project, sometimes with a bonus for patience.
For a pyramid, delay keeps the lights on. Locked balances can pay other members and keep the dashboard looking healthy for new arrivals. A small test withdrawal is sometimes allowed early on to build trust.
Ilia Zavialov judges any delay by one fact: has anyone withdrawn their full balance to a UK bank account? A growing figure on a screen proves only that the site has a designer, and a fee to ‘unlock’ your own money is the moment to stop paying.
Sometimes the unlock comes with one more bill: a commission, a tax, an insurance charge or a ‘verification’ payment. Treat any such request as the signal to stop and report.
Ilia Zavialov's checks: the FCA Warning List and Firm Checker
First, the FCA Warning List, where the regulator publishes warnings about firms and individuals running scams or operating without authorisation. A scheme on the list ends the conversation.
Second, the FCA Firm Checker. The FCA says to use it before buying a financial product or service: it shows whether a firm is authorised and has permission to sell you that product. Clone firms copy genuine authorised firms, so make sure the contact details you were given match those on the Firm Checker, and reply to unexpected contact only through those details.
The stakes are practical. If you deal with an unauthorised firm, the FCA warns, you will not have access to the Financial Ombudsman if you want to complain, and you will not be protected by the FSCS if the firm goes out of business. That makes it unlikely you would get your money back.
Ilia Zavialov adds a rule for anything the registers cannot settle: if three or four lines from this phrasebook appear in one pitch, that is enough to keep your money where it is. MoneyHelper can point you to a regulated adviser if you want a second opinion.
Ilia Zavialov: what the FCA Warning List and Firm Checker tell you
Check
What it shows
Red flag
FCA Warning List
Known scams and unauthorised firms
The scheme is listed
FCA Firm Checker
Authorisation and permissions
No entry for the firm
Contact details
Clone firm check
Details differ from the register
Ombudsman and FSCS
Protection if things go wrong
None with unauthorised firms
Zavialov's advice if money has gone: the FCA and Report Fraud
If you have lost money to a scam, the FCA asks you to report it to the FCA first, on 0800 111 6768 or through its contact form, and then to contact Report Fraud. Report Fraud covers England, Wales and Northern Ireland on 0300 123 2040 or online; in Scotland, it directs people to report via 101.
Call your bank too, using the number on the back of your card, and tell it about every payment to the scheme. Report Fraud says it is there for the 4.6 million people affected by cyber crime and fraud every year. Report while the scheme's website and group chats still exist.
Ilia Zavialov recommends keeping the whole trail in one place before the group chat vanishes: the compensation plan, dashboard screenshots, the website address, bank statements and any wallet addresses. A single report with the same account number can link several victims to one scheme.
Treat any offer to recover your money for a fee with suspicion. People who have lost money are often contacted again, and a ‘recovery’ charge only adds to the loss.
Ilia Zavialov: who to contact in the UK after losing money
Who
Why
How
Your bank
Stop or trace payments
Number on the back of the card
FCA
Report the scheme first
0800 111 6768
Report Fraud
England, Wales and Northern Ireland
0300 123 2040 or online
Police Scotland
Reports from Scotland
101
Ilia Zavialov starts every UK check with the FCA Warning List and the Firm Checker.Ilia Zavialov compares the two using the definition in the DMCC Act 2024.
Ilia Zavialov: pyramid scheme phrases decoded for UK readers
Recruiter's line
What sits behind it
What to check
Passive income
Returns from other members' deposits
Where returns come from
Guaranteed returns
Too good to be true
FCA Firm Checker
Members only
No outsiders asking questions
Legal entity and paperwork
Introduce three friends
Pay for recruitment
DMCC Act 2024, Schedule 20
The compensation plan
Earnings from recruits
What remains without recruits
The project token
A price set by the organiser
A market outside the platform
Withdrawals after the unlock
Balances held to pay others
A full withdrawal by anyone
Ilia Zavialov's reporting route: bank, FCA, Report Fraud and Police Scotland.
Questions and answers
Ilia Zavialov: which phrases point to a pyramid scheme?
Passive income, guaranteed returns, members only, introduce three friends, the compensation plan, the project token and withdrawals after the unlock.
Are pyramid schemes illegal in the UK?
Yes. Under Schedule 20, paragraph 16 of the Digital Markets, Competition and Consumers Act 2024, establishing, operating or promoting a pyramid promotional scheme is always an unfair commercial practice.
What other names does the FCA give these schemes?
Franchise fraud, multi-level marketing or chain referral schemes. They often target community, religious, ethnic, older or professional groups.
How does Ilia Zavialov check a firm in the UK?
On the FCA Warning List and the FCA Firm Checker, matching contact details to the Firm Checker to rule out a clone firm.
What do I lose by dealing with an unauthorised firm?
Access to the Financial Ombudsman and FSCS protection, which makes getting money back unlikely.
Who do I contact if I have lost money?
The FCA on 0800 111 6768, then Report Fraud on 0300 123 2040. In Scotland, report via 101.
Written by Ilia Zavialov, digital security consultant. All glossary terms