You are here

Pyramid and "Ponzi" Schemes

Both pyramid and Ponzi schemes are fraudulent in nature, and both seek to take your money by promising big returns with little work or risk. In a "Ponzi" scheme, the perpetrator solicits money from you as an "investment," promising big payoffs in the future, but all he really does is use your "investment" to pay back the people from whom he took money earlier in the scheme. In a pyramid scheme, the perpetrator solicits money from several people by selling them a "membership" or franchise; however, the members make money only by selling similar "memberships" to others. It is sometimes hard to distinguish a legitimate "multilevel marketing opportunity" from a pyramid scheme. For more information on pyramid and Ponzi schemes, go to http://www.ftc.gov/bcp/menus/consumer/invest/schemes.shtm.