What is a Ponzi Scheme?
Ponzi is known as the father of the so called Ponzi scheme. This scam is a type of illegal pyramid scheme,
which fraudulently deprives investors of thousands of hard earned money.
A Ponzi Scheme is an
illegal Pyramid Scheme in that funds are solicited from investors, often with the pretence of trading on
the stock exchange, whereby fixed recurring returns are guaranteed.
These repayments are then paid to the investors out of the
investments from previous investors and not from funds generated from genuine trading.
The classical illegal pyramid scheme guarantees repayments only
upon the introduction of new recruits into the pyramid scheme, whereas the Ponzi scheme, which is often disguised
as investment opportunities, guarantees fixed repayments irrespective of the investor's further
In both the illegal Pyramid Scheme where payment is made upon the
introduction of new investors and the Ponzi Scheme where repayments are effected regardless of the investor
introducing new investors, the system pays these investors out of former investments "Peter robs Paul".
As opposed to a glaringly obvious Pyramid Scheme a Ponzi Scheme is
difficult to recognise as an illegal Pyramid, because the nature of a Ponzi is disguised as a legitimate investment
Genuine trading on the stock market is by its very nature is risky
and guaranteed fixed and lucrative recurring income from such a venture is unlikely without taking
A Ponzi Scheme is often disguised as an investment opportunity in
a reputable trading initiative and the practise of making repayments from capital as opposed to profit is
In reality any trading venture is coupled with inherent risks,
however in the case of a Ponzi Scheme disguised as a trading venture, fixed repayments are guaranteed without
any risk, despite the possibility of fluctuations in the market or bad trading months. The reason for this is
that in the case of a Ponzi Scheme, returns are paid from other investor money and not from any real trading
Multi Level Marketing is similar in structure to a
pyramid scheme and is not to be confused with an illegal pyramid scheme. In an MLM profits are
generated and proportionately distributed to an upline. As opposed to the illegal pyramid scheme, where
investor funds are merely redistributed and no profits are generated.
The principals of a Ponzi Scheme will often dispay exorbitant
wealth and success as a mechanism of advertising the venture and many investors will be lured by the testimony of
previous investors who were paid from the system.
The MLM and Pyramid Schemes patterns clearly involve the
introduction of new members or agents to be brought into the system in order for an investor to be paid. In the
case of a Ponzi Scheme the investor may not be aware that the system is dependent on new recruits in
order to get money out.
As is the case with any pyramid scheme whereby the success of the
investor is determined by the introduction of new people into the scam, the system will collapse and investments
will be lost the the investor.
Ponzi Schemes are often to the detriment of people who in good
faith have invested money that they simply cant afford to lose. This is despite the fact that the investment
opportunity is explained as being without risk and recurring income is guaranteed.
Investors caught up in Ponzi Schemes are often attracted by the
apparent success of other investors who were in turn pulled in by the allure of risk free returns that
simply sound too good to be true. These investors are not financially savvy and are often pensioners or people who can not afford to lose
the money that they invested.
Hype | Getting scammed | Internet Scams | Chess Board | Pyramid Schemes
| Ponzi Schemes | MLMs |
Maslow | Subliminal