While it is not "fraud" because the terms are clearly stated, it is also not a "legitimate business activity" because the whole business plan is to profit off of those who just joined.
Other than this, there is no other source of profit or revenue to be generated and unless the creator decides to conjure up a unlikely alternative revenue stream, this is one of the most transparent Ponzi schemes ever.
Having said that, I now worry if scam artists will implement these ideas.
RE: Scamtastic