Final answer:
A promoter encourages recruitment of new participants to pay profits to earlier investors in a pyramid scam, which is an illegal scheme that promises large returns from money contributed by new recruits, inevitably leading to collapse and financial loss.
Step-by-step explanation:
A promoter encourages recruitment of new participants to pay profits to earlier investors in a pyramid scam. This type of scam is known as a pyramid scheme, which is a fraudulent system of making money based on recruiting an ever-increasing number of investors. The initial promoters recruit investors, who in turn recruit more investors, and so on. Large returns are promised to the early investors from the money contributed by the newer investors.
At some point, the schemes often collapse when it becomes impossible to recruit the next level of investors or when the promoter runs off with the money. Pyramid schemes are illegal in many countries due to their unsustainable nature and the inevitable financial loss it causes to participants (except for the initial promoters).