The Pyramid and Ponzi Scheme Fraud and how to Identify them

A lot of people have fallen victims of both Pyramid schemes and Ponzi Schemes as this two schemes gives a lot of promises. Also, so many people cannot differentiate between a Pyramid Scheme and a Ponzi scheme, so what are the both schemes?

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A Ponzi scheme is a scheme whereby the founder recruits people to invest into a business they do not see promising the investors large return within a short period of time. The returns for older investor is gotten from newer investors who will be fooled into believing that they are investing into one business. People who invest in Ponzi schemes are asked to get referrals and make more money as they refer more people who invest but the basic truth is they are rubbing the newcomers to pay the people who have been there before. In Ponzi scheme, once there is less money coming to what is going out, then it crashes.

Pyramid Scheme on the other hand involves purchasing a product and referring people to purchase the product under you. In most cases, this products are often irrelevant and do not perform the way they are expected to. With pyramid scheme, there is always someone at the top making the money and selling to product to several down lines who won’t be able to sell the products in most cases.

Most pyramid scheme always have to recruit an average of 6 people and this six people would be required to recruit six people who would still recruit six people. From one person, it becomes 6 people and then 36 people, then 216 people and so on. This down lines always have to recruit new people into the scheme and when there people are so many people, it becomes difficult to recruit more people. So many pyramid schemes come in form of Multi-Level Marketing (MLM), Investing group, and sales company and so on. In most cases it is very difficult to differentiate between a true MLM and a pyramid scheme but we should understand that MLMs pay participant incentives on selling products while pyramid scheme pays participant majorly for recruiting more people but it is often difficult to differentiate pyramid schemes in disguise as an MLM and a real MLM as they sell products to cover their doings.

There are a few things to look into when involved in a Ponzi or Pyramid scheme and one of them is Time. A Ponzi scheme promises you too good to be true returns within a short period of time while a pyramid scheme asks you to bring referrals within a particular period of time. If time is involved and it is being pressured around the business, sales or investment, then it is surely not a good thing to go into.

very good post,I must say that when what is promised is too good often ends up being a fraud.On several occasions, many years ago I fell into both traps and cisto recover a lot of time.
Thanks for the information and so we can differentiate Between both, and not fall into the trap.

That is what gets a lot of people excited and they do not realize how they are falling into a big trap.

Pyramid schemes are very deceptive, only thing is that they are more realistic than ponzi schemes, ponzi schemes are always too good to be true, only the greedy ones fall for these two traps

Some first timers fall into trap out of ignorance but when it becomes a constant thing then it occurs out of greed.

Too good to be true. Some time ago were systems that were very fashionable, fortunately the trap was discovered and many people were saved from falling into these frauds, of course there were thousands who were swindled, but good of all experiences both good and bad you learn!

The schemes by these wicked people caused a lot of people to lose their minds, but those who could learn from their experiences had their funds safe.

Oh I actually just regarded all of them as being Ponzi schemes appreciate the clarification.

They are different....

To think that people still fall for these kinds of get rich quick schemes is unbelievable. It indicates people are desperate and greedy.. Nice post buddy.

People fall for it everyday, these scammers come up with different strategies all the time.

Ponzi schemes come as a form of deceit to swindle people of their cash and it is usually very deceptive and painful when it occurs.

Good topic. We must always obtain some sort of value from an investment.

But these Ponzi scheme promise the value they are unable to offer.

Indeed. I meant that we must keep a measurement of value. Having a masters, I understand intangible value. Ponzi schemes do not promise intangible value. They instead promise real value but offer no evidence or demonstrate no stake of their own.