Ponzi and Pyramid Schemes
- Ponzi schemes offer high rates of return which cannot be duplicated in the open market. The perpetrator uses money coming in from subsequent investors to pay “dividends” to prior investors. Eventually the scheme falls apart because there isn’t enough money coming in to support the early investors and unfortunately significant losses are incurred for everyone.
- Be wary of investment opportunities offering unusually high earning potential.
- Check out any investment thoroughly before investing funds.
- Have an unbiased investment professional check the investment out.
- Pyramid schemes are similar to Ponzi schemes; however, the participants in a Pyramid Scheme are recruited to bring in new individuals and are paid for their recruitment efforts. Often see this in marketing programs such as distributorships and franchises for specific products or types of products.
- Be careful when approached to invest in systems where you are required to bring in additional investors.
- Check the identity of the business through BBB or other watchdog organization.