Ponzi vs. Pyramid Scheme: What’s the Difference?
Pyramid schemes also promise easy riches, via investment opportunities or marketing of consumer goods and services. The crooks at the top of the pyramid reach out to would-be entrepreneurs, often via social media, YouTube videos, online ads and financial “presentations.” For an upfront fee, these lucky investors can join the team selling this or that great product.
The real pitch, however, is that participants can reap huge profits by bringing others into the fold, earning commissions from those who bite. The next layer of recruits is supposed to go out and bring in more people, and so on, with a cut of all the fees flowing to those at the top.
Many pyramid schemes resemble multilevel marketing (MLM) businesses, which also involve a chain of adding new people to the operation. The key difference is that while a legitimate MLM focuses on bringing in people to sell the product, pyramid promoters emphasize the recruitment itself.
One hallmark of a pyramid scheme is that its leaders describe what is supposed to be the actual business — common examples include e-books, online advertising and unspecified “tech” services — in vague, fancy-sounding terms, to conceal that the company doesn’t really sell anything at all. Another is that, like Ponzi schemes, they eventually collapse, leaving investors holding the…