What is a Pyramid or Ponzi Scheme?
A pyramid scheme and a Ponzi scheme are fraudulent investment schemes that rely on recruiting new participants.
In a pyramid scheme, people invest money with the promise of high returns and earn money from the fees paid by those they recruit. As more participants are recruited, the structure takes the shape of a pyramid. Eventually, when new recruits become scarce, the scheme collapses, causing most participants to lose money.
In a Ponzi scheme, investors are promised high returns and receive profits from money contributed by new investors rather than legitimate investments. When new investors dwindle, the scheme falls apart, resulting in significant losses for the majority of participants.
Both pyramid schemes and Ponzi schemes are illegal and should be approached with caution.
Total estimated losses from defrauded investors
coerced by the Bernie Madoff Ponzi scheme in 2008