The road to financial ruin is littered with failed pyramid schemes — illegal arrangements in which participants make most of their money not by selling a product, but simply by recruiting more members.

The pyramid collapses when the supply of new recruits runs out, as it invariably does. Those at the top of the pyramid make money, leaving those near the bottom holding the bag.

"There's no actual products being sold. There's no real revenue coming in," Andrew Lelling, U.S. attorney in Massachusetts, told CNBC's "American Greed." "It's just money going around in circles, which is basically a Ponzi scheme."

A Ponzi scheme uses money from new investors to pay earlier investors. In a pyramid scheme, the earlier participants recruit newer ones, and they are all ostensibly selling a product.

No pyramid scheme was bigger than TelexFree, which conned 1.8 million victims worldwide into shelling out $3 billion to get in on what was, essentially, a bogus business. Lelling says TelexFree is the largest pyramid scheme ever prosecuted by the Justice Department. By contrast, Bernie Madoff's Ponzi scheme resulted in at least $17.5 billion in losses, but the number of investors who were cheated numbered in the thousands.

Charismatic co-founder Carlos Wanzeler, who moved to Brazil the day federal agents raided TelexFree's offices, faces a 17-count federal indictment alleging conspiracy and fraud. His business partner, James Merrill, is serving a six-year federal prison sentence after pleading guilty in 2016 to 10 felony counts.

While TelexFree was ostensibly in the business of selling an internet phone service allowing free calls to Brazil and Latin America, participants were not expected to sell the product itself. Instead, they would spend their own money to buy ads for the service. They would be paid for cutting and pasting the ads online, and for recruiting other people to do the same.

When U.S. and Brazilian authorities began investigating TelexFree for what appeared to be an illegal pyramid scheme, the company declared bankruptcy and froze members' accounts, leaving millions of people around the world in the cold.

"They took money from people that (were) not rich. They are greedy," TelexFree member Eloites Euriques said, referring to Wanzeler and Merrill. "They wanted more money, but they have to think what they did for poor people and sick people like me."

Euriques, who suffers from multiple ailments, lost her life's savings of more than $20,000. She had hoped to use her TelexFree earnings to pay for heart surgery.

"There are legitimate multilevel marketing companies," Lelling told "American Greed." "The difference is that a legitimate company makes its revenue from the actual sale of a product. A pyramid scheme does not."

Knowing how to spot that difference can be tricky, experts say.

Pay to play?

Be wary of any arrangement in which you are expected to pay money upfront, said Bruce Dorris, president and CEO of the Association of Certified Fraud Examiners.

"If I've got to invest just for the right to sell something," he said, "walk away before you lose more money. Because that person will be asking for more money in terms of ways to network or extravaganzas or conferences that they can use to help promote and all they're doing is recycling the same sales techniques that they talked before."

Before investing your hard-earned money in any sort of multilevel marketing scheme, Dorris advises that you do lots of homework.

"In a legitimate multilevel marketing company, they're going to have financial statements," he said. "There's going to be something that you can research, that you can look for, that you can ask questions about. How long have you been in business? What is the essential revenue for this company?"

Most important, make certain that the company is actually selling something.

"Is it a product? Is it a service? Or is it from fees or contributions coming in for the right to sell these products? If that's the majority of the revenue, you need to walk away because it needs to be a product. There needs to be some value to what you're selling, not just a token amount," he said.

The Federal Trade Commission, which regulates multilevel marketing programs, offers three telltale signs of an illegal pyramid scheme:

• Your income is based mainly on the number of people you recruit, and the money those new recruits pay to join the company — not on the sales of products to consumers.

• You are required to buy lots of inventory.

• You are forced to buy other things you don't want or need just to stay in good standing with the company.

Work at home

While there are many legitimate ways to make a living while working from your home, that is also a common sales pitch for illegal pyramid schemes. The concept of working from home with the freedom and flexibility of being your own boss has great allure for many people. The problem is that scam artists know how alluring it can be, and they are happy to exploit our entrepreneurial spirits.

In the TelexFree scam, for example, participants were told that they could make big money simply by cutting and pasting ads on their home computers.

"Any time that you have a direct solicitation from someone, 'Hey, look, you can come in. You can work from your house. You can make this amount of money and if you can get some other people to work for you from their homes, you'll make even more money,' that's a huge red flag to walk away," Dorris said.

If you are still thinking of going ahead, and since you are already sold on the idea of working from home, Dorris says get to work.

"You need to make sure that you talk to some family members, talk to some friends, some type of group to see whether or not this is legitimate," Dorris said. "Look for information about this company online. If the first search engine shows this business name and 'scam' then you need to walk away. That's a huge red flag."

But don't stop at word of mouth. Check with federal and state regulators to see if the company has a history of complaints.

The FTC suggests asking these basic questions before forking over a dime to a multilevel marketing program:

• What are your annual sales of the product?

• How much product did you sell to distributors?

• What percentage of your sales were made to distributors?

• What were your expenses last year, including money you spent on training and buying products?

• How much money did you make last year — that is, your income and bonuses, less your expenses?

• How much time did you spend last year on the business?

• How long have you been in the business?

• How many people have you recruited?

• What percentage of the money you've made — income and bonuses less your expenses — came from recruiting other distributors and selling them inventory or other items to get started?

Think you have been scammed?

If you think you are the victim of a pyramid scheme, Dorris says your first step should be reporting it to law enforcement. That could be as basic as calling your local police department or contacting your state attorney general's office. You can also file a complaint with federal regulators including the Federal Trade Commission. The important thing is to not stay silent.

"When we look at the report and some of the statistics that we've gathered," Dorris said, "nothing was reported because people feel embarrassed, whether it's an individual or whether it's a company. But the only way to uncover this, to take the mask off of these pyramid schemes, is to report it and to actually do something about it."

See how Carlos Wanzeler allegedly pulled off his massive pyramid scam, and learn the surprising place where he hid some of the proceeds, on the next ALL NEW episode of CNBC's "American Greed," Monday 10P ET/PT only on CNBC.