With the current prevalence of the Ponzi scheme across the nation, the terms “Ponzi scheme” and “pyramid scheme” are often mistakenly used interchangeably. They are different.
In a classic pyramid scheme, you generally pay into an offer that claims you can make money for yourself by recruiting others into the scheme. Usually, those recruits will then pay their portion to you, and so on.
Watch as Attorney Dave Meyer explains more about Ponzi schemes.
Learn more about the aftermath of a Ponzi scheme by reading Attorney David Meyer’s post for the American Bar Association.
You end up paying into a pyramid scheme with hopes of a greater return when you find more recruits. In a Ponzi scheme, although the structure seems very similar, you aren’t usually required to do any more work than just handing over money to be invested. This is part of what makes the Ponzi scheme so effective. You usually aren’t aware of the need for additional recruits to keep the scam rolling, and you don’t have to work for it, either. The Ponzi schemer takes your money and promises to do all the work for you, and they’re often long gone before you even realize what’s happened.
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