A chain letter is basically a pyramid scheme.
This is an example of a typical chain letter:
Jack receives an email asking that he send $1 to the person whose name is on the top of the chain letter. Then he is told to add his own name to the list and send the letter off to at least 7 people. Jack does this, figuring that when his name comes up he'll get a significant sum of money. The truth is he will never receive that money. To understand why this is so, we have to look at how the chain letter scheme works. If each person in the chain sends the letter to 7 additional people, then each generation of the letter has squared itself.
Here is a basic model of the pyramid levels (remember each number is multiplied by itself to find the next level):
- 7 - Name not added yet
- 49 - 7th position
- 2,401 - 6th position
- 5,764,801 -5th position
- 33,232,930,569,601 - 4th position
Yes, when your name reaches the 4th position, 33 TRILLION people theoretically have received your letter. This is impossible. The entire world population in 2011 was approximately 6.9 Billion persons, according to Google. So attempting to reach 33 Trillion people would be trying to reach about 4000 times the entire population of the planet Earth! And, at that point your name is only in 4th position. In real world terms, your name will never reach the top of the list and receive a payoff.
There are more elaborate versions of the scam. Another example, which "Crimes of Persuasion" has listed on their website, depicts a scheme in Italy where the victim pays $60 to purchase a member's investment certificate. This certificate has seven people's names on it. The victim is supposed to send another $60 to the first name on the list AND to the program running this operation for "administrative fees". The victim will then receive 3 additional certificates, each with his name on the bottom of the list, which the victim is supposed to sell for $60 each to (presumably) give to the company. Again, this is a pyramid scheme which works in a way that the victim's name will never reach the top and receive the payoff.
There are many variations of this scam, but all of them work on the same principle. If you receive any email, phone call, postal mail, or see a notice asking you to give money in order to make money, this is almost always the sign that this is a scam. These scams almost always also promise that you will get rich with very little effort. Please be aware, that if you join one of these scams, you will not only lose the money you spent, but you could also face criminal charges for perpetuating the scam yourself. Be careful, and think before you respond.
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Crimes of Persuasion - http://www.crimes-of-persuasion.com/Crimes/Delivered/chain_letters.htm