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Difference Between Pyramid and Ponzi Schemes

Investing money can come with risks, but investors usually are prepared for potential financial setbacks or windfalls depending on how the market is doing. One danger many hope to never face, though, are schemes by brokers. In particular, there are two common schemes — pyramid and Ponzi. There are some similarities, and differences, between these two types of fraud.

Did your broker take advantage of you? The securities law attorneys at Weltz Law want to help you. Reach out to our experienced team to set up a free consultation.

Pyramid Schemes

A pyramid scheme is a fraudulent investing system where people recruit others to make money rather than invest in any genuine product or service. Whether individuals are part of a pyramid scheme knowingly or not, most suffer from the fallout. The only person who truly benefits from a pyramid scheme is the person who started the scam.

Ponzi Schemes

A Ponzi scheme is an illegal investment scam where new investors are lured by the promise of high returns with little or no risk. Money from new investors is used to pay dividends and ROI to earlier investors, giving the appearance that the investment is profitable. Eventually, there is not enough money to pay all the investors, and the scheme collapses.

Similarity and Difference

The most significant similarity between pyramid and Ponzi schemes is that both of these practices are illegal and both scams dissolve when there are not enough investors or investments coming in.

The difference between these types of fraud is how the money comes in. As shared, a pyramid scheme primarily relies on the number of people and money involved, whereas a Ponzi scheme focuses more on the investments coming in rather than new participants.

Contact Weltz Law For Your Investment Questions

If you are concerned about your investment not being handled properly, you have every right to seek legal guidance. The attorneys at Weltz Law are here for you to answer questions regarding investments and broker conduct. Make sure your money is being appropriately handled — contact the team at Weltz Law today. (877) 905-7671