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Ponzi and Pyramid Schemes: Internet-based Ponzi Schemes (Part 2) Print E-mail
The illustration given in Part 1 (this is the second of 2 parts), courtesy of the US SEC, shows the impossibility of sustaining a pyramid scam. Anyway, the Ponzi and pyramid schemes are almost synonymous, although there are distinctions pointed out by some:
    * A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish pyramid schemes from Ponzi schemes:

       * In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).

       * A Ponzi scheme relies on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.

      * A pyramid scheme is bound to collapse a lot faster, simply because of the demand for exponential increases in participants to sustain it (Ponzi schemes can survive simply by getting most participants to "reinvest" their money, with a relatively small number of new participants).
There's an increasing use of the internet to perpetrate Ponzi-type scams. "Because the Internet offers access to millions of people, regulators say it is fueling a resurgence in scams that thrive on large numbers of victims. Ponzi schemes, for example, depend on continually bringing in new investors to pay off the first." In the old days you had to go out and find the suckers. Now you can go on-line where it's much easier," said an official.
 
How to spot an internet-based Ponzi scam

According to the Philippine SEC, the following are the features of internet-based Ponzi schemes:
- No SEC registration
- Investment in foreign currency, preferrably in US Dollars
- Offers or guarantees a huge profit in a short period
- Utilizes a binary network (i.e., upline and downline) to earn commissions
- No paper trail (i.e., contracts, receipts)
- Promises little or no financial risk
- Provision for a lock-up period where investors cannot touch the money for a fixed period (i.e., 60 days)
- Assures pay-off of investments in a short time
- uses high pressure methods to convince investors to reinvest their earnings
- Unknown principal office, address, founders, directors or officers
- Orientation seminars are conducted informally
As for me, as I already previously noted, if it's too good to be true, it's probably a scam.

Published in : Topics, Scams and Schemes

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