The Right Differences Between Ponzi and Pyramid Schemes

Have you also been drawn to a company that promises exceptionally high rates of return on investment? You are not alone, as it is human nature to feel drawn to projects with offers that are too good to be true. Two pyramid schemes and Ponzi schemes are used to describe these fraudulent schemes which trick unsuspecting people into investing their money and paying it out through payments made by subsequent members. There are many similarities between Ponzi and Pyramid systems, although some differences are also highlighted in this article in order to make readers aware of such programs and systems. Here are the information about ponzi vs pyramid schemes now.

Ponzi Scheme

Ponzi schemes are so called because of Charles Ponzi who was an ordinary employee and who was the first to initiate such an operation which was known all over the country. In such systems, potential investors are promised extremely high rates of return on their investments with little or no risk. Nothing is produced or sold and old members are paid with money obtained from new members. As long as the plan keeps adding new members and getting money, the older members get a high return, so more and more people believe in the system. Ponzi schemes collapse on their own, when the speed with which new member’s money is required adds nothing,and that the older members are screaming for their money.

Pyramid scheme

There are many schemes which have many similarities to Ponzi schemes but differ in some ways. Pyramid schemes are such schemes that appear legitimate businesses, but the FBI points out that these programs are fraudulent and ask ordinary people to stay out of these schemes. A pyramid scheme is so called because each subsequent level is greater than the previous one. Thus, the founder sits at the top while new members are added at the lower level. The money that comes from the new members goes up in order. There is no sale of product or service like Ponzi schemes, and members at a higher level enjoy the fruits of the labor of downline members as they keep recruiting new members.

What is the difference between Pyramid and Ponzi schemes?

The Ponzi and Pyramid systems don’t make any profit by selling a thing or a service, but fund older members with money from new members. The most basic difference between a pyramid scheme and a Ponzi scheme is that in a pyramid, members must recruit new members to gain profit, and as long as new members are recruited, fraud is perpetrated. It’s when the new members (read the victims) don’t join that the pyramid collapses.

In Ponzi schemes, members are not required to recruit new members and they fall in line due to the lure of higher rates of return. The Ponzi scheme does not suddenly collapse like a pyramid, and older investors are tempted to keep their money locked in for a long time by offering higher returns. In Ponzi, the founder interacts with the whole family during a pyramid. new members have no interaction with the founder. Although the source of payment in both plans is new members, in Pyramid this source is always disclosed, while in Ponzi the source of payment is never disclosed.