Inverted Pyramid Scheme
A rare and hypothetical scenario in M&A where a company attempts to use a series of acquisitions to artificially inflate its value, creating an unsustainable business structure.
Implications
A fraudulent investment scheme where returns are paid to earlier investors using the capital from newer investors, rather than from profit earned by the operation of a legitimate business, often leading to the collapse of the scheme when new investment dries up.
Example
Example: An investor falls victim to an inverted pyramid scheme, where promised high returns are paid out using the funds of new investors, ultimately leading to losses when the scheme collapses as it becomes unsustainable.
Related Terms
Different from legitimate investment structures, an inverted pyramid scheme relies on constant new investment to pay returns, making it inherently unstable and illegal.
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