Nowadays, every person does a job to earn more money after making no one want to lose their money. But some people are investors, and when they invest money, they always want to get profit. Here, the main thing is that you have to be careful before investing your money.
This is because there are too many frauds, scams, and schemes to steal your money that you invest. If the investing deal is best, then you can go for it. But in investment, there are two types of fraud: Ponzi scheme vs Pyramid schemes.
Do you know what the difference is between a Ponzi Scheme vs Pyramid Scheme? Is bitcoin a Pyramid scheme? Every investor needs to know about both these frauds.
In this article, we will tell you everything about the Ponzi scheme vs Pyramid scheme. If you want to invest your money, then you should read the complete article. With the help of knowing about these schemes, you can easily save your money from stealing.
What is a Ponzi Scheme?
There are too many types of scams to steal innocent people’s money, and the Ponzi Scheme is one of them. It is considered the oldest and famous scheme, but still, in 2021, too many scammers used this scheme.
However, in a Ponzi scheme, a person, investor, or planner promises to other people that they will get too much profit if they invest their money. But the reality is that they will not invest your money anywhere because they take your money for themselves.
When an investor wants their money back after some time, the planner or fake person will turn back money. But it is the other investor’s money. We can say that the Ponzi scheme is stealing others’ money without knowing them. After investing the money, if you want to get back your money earlier, you are lucky.
The planner or fake person will return your money easily because he has the new investors’ money. But if you delay asking for your money back, then you are not a lucky person. The reason is the planner, or fake person will not return your full money and claims they failed the total investment.
You will get some part of your investment if you find that the investment scheme is fraud. But if you don’t see any hint about the Pinza scheme, it means the planner steals all your investment.
The name of the Ponzi scheme derived from the Italian fraud artist Charles Ponzi. In the year of 1920, Charles Ponzi stole the money of the investors. The fraud artist con too many investors before being arrested.
Example
The best and most prominent example of the Ponzi scheme is Bernie Madoff. Bernie started his Ponzi scheme in 1990. But the Ponzi scheme of Madoff was ended when he told everything to his sons.
The next day of his confession, his son reported the whole crime to his father. However, till now, the Ponzi scheme of Madoff is considered the giant scam in history. With the help of this scheme, he stole up to $65 billion.
This scam is very famous till now, not because of its large amount, it is renowned because too many big people were affected by this scam. Those people include different celebrities like Kevin Bacon, Steven Spielberg, and Holocaust survivor.
When he started the Ponzi scheme at that time, he was the chairman of the NASDAQ. The root cause was that too many people trusted Madoff; that’s why his Ponzi scheme was very successful.
In the year of 2009, he was arrested and got the punishment of 150 years in jail. At that time, the US department announced that Madoff stole $772.4 million from more than 37,000 people.
What is a Pyramid Scheme
The Pyramid scheme is the business marketing strategy; in this scheme, every member must pay some amount to invest in a business. In return, they promised to profit when they recruit other people in the business below them.
The structure of this scheme defines its name; in this scheme, all the new investors will pay a fee, and all the fees will be divided into the scheme members.
The Pyramid scheme includes the different types of products for selling. And the investors have to sell the products. However, if you want to make money in this scheme, you have to recruit other people. And it is compulsory for every person that you recruit to recruit other people.
Every person has to pay the joining fees and also a monthly fee for the business membership. The Pyramid scheme mastermind will get all the profit, which means all the fees of new investors or members. The following strategy of this scheme is to show that the business is very profitable and attractive.
They always tell the recruits that they make too much money after joining. Let me explain it with the help of an example. Like six people join the business and invest in it. After this, those six people also recruit the other six people, and this pattern goes on.
With the help of this strategy, there are thousands of people who join the business and pay the joining fee and the monthly membership fee. But here, the problem is that it is impossible to maintain the chain of recruiting the people and build a giant pyramid.
Suppose you recruit the six people, but the possibility of recruiting the other six people by these people is complicated. Most people failed to recruit the other six people, that’s why they left the business, and in this way, the pyramid scheme will break down. So, making money with the help of a pyramid scheme is a challenging task.
Example
The primary example of the Pyramid scheme is the BurnLounge. This was a marketing company that worked with the help of a pyramid scheme. Basically, with the help of this company, the investors get the rights to the music. Learn Hash functions in crypto trading.
They sell the music with the use of the company’s network. After some time, the US FTC recognized that the company was a fraud and worked according to a pyramid scheme. That’s why the company was closed and got the punishment of $2 million.
Key Differences – Ponzi Scheme Vs Pyramid Scheme
Too many people think that there is no difference between the Ponzi and pyramid schemes. But this doesn’t seem right because both these schemes are scams, but technically they are different.
Ponzi Scheme
If we talk about the Ponzi scheme, then this only needs investment from the victim’s side. The person with this scheme will promise to return the money.
Pyramid Scheme
In the pyramid scheme, the mastermind will promise you to give the money. But in one condition if you insist the other people join the business and they pay the monthly fee. If you want to be involved in the pyramid scheme and want to make money, you can do this when others give their money.
However, the pyramid scheme is illegal in many countries like the US, Canada, etc. If you found this activity in your country, then you can report this. However, the CFTC and the SEC now take action in both Ponzi and pyramid schemes, and now it is compulsory to catch these frauds.
Frequently Asked Questions (FAQs)
Is it illegal to invest in a Ponzi scheme?
Yes, it is illegal to invest money in the Ponzi scheme. The Ponzi scheme is an illegal business; in this business, the person will use the new investor’s money to pay previous investors.
Can you go to jail for the pyramid scheme?
In the United States and some other countries, it is a big crime to recruit other people and make money. The punishment for the pyramid activity is a $5000 fine and jail for four years.
Is a pyramid scheme legal?
The answer to this question is in too many countries, the Pyramid scheme is not legal. Because too many people lost their money in this scheme, they only promise to make money by recruiting other people.
But it is not a tree because, in this, the top-level people can only make money. But still, you have to confirm the status of the Pyramid scheme, whether it is legal in your country or not.
Can you make money in a pyramid scheme?
In the pyramid scheme company, all the employees will promote the original company rather than the products. The top-level workers of the pyramid scheme company make money. But the lover level worker will not make any money.
Conclusion
Both Ponzi and the Pyramid are old fraud schemes. But still, now, in 2021, too many people use these schemes to steal the money of innocent people. If you find this type of fraud scheme in your country or near you, you have to report it to the government.
So, I hope this article is beneficial for you, and you know very well about the Ponzi Scheme vs Pyramid Scheme.
