{"id":372436,"date":"2016-04-11T01:21:50","date_gmt":"2016-04-11T06:21:50","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/state\/delaware-law\/delaware-pyramid-and-ponzi-schemes-laws.html"},"modified":"2016-06-20T19:51:24","modified_gmt":"2016-06-21T00:51:24","slug":"delaware-pyramid-and-ponzi-schemes-laws","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/state\/delaware-law\/delaware-pyramid-and-ponzi-schemes-laws.html","title":{"rendered":"Delaware Pyramid and Ponzi Schemes Laws"},"content":{"rendered":"\n
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Delaware Pyramid and Ponzi Schemes Laws<\/h1>\n
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Created by FindLaw’s team<\/a> of legal writers and editors<\/i><\/p>\n\n | Last reviewed\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

Pyramid and Ponzi schemes are both forms of investment fraud in which organizations with little or no earnings pay returns to existing investors from the funds contributed by new investors. The schemes continue in this manner until the organization can no longer attract enough new investors and collapses.<\/p>\n

While pyramid schemes and Ponzi schemes are very similar, the key difference lies in the organization of the scheme. In a pyramid scheme<\/a> there is usually one person (the "recruiter") who recruits the first round of the investors and requires these early investors to recruit the next round of investors, and so forth. In a Ponzi scheme<\/a>, however, the scheme organizers do the recruiting and create the false appearance of profit by paying early investors with the funds contributed by later investors.<\/p>\n

Pyramid and Ponzi Schemes in Delaware<\/h2>\n

In Delaware, pyramid and Ponzi schemes are referred to as pyramid or chain distribution schemes. The table below outlines Delaware’s main pyramid and Ponzi scheme law.<\/p>\n\n

Code Section <\/b><\/p>\n<\/td>\n

Delaware Code subchapter VI<\/a>: Pyramid or Chain Distribution Schemes<\/b><\/td>\n<\/tr>

What’s Prohibited? <\/b><\/p>\n<\/td>\n

The use of a "pyramid or chain sales distribution scheme" in connection with the solicitation of investments in the form of money, property, or any other thing of value.<\/p>\n

It is also illegal to promote, sell, attempt to sell, offer, or grant participation in a pyramid or chain distribution scheme.<\/p>\n<\/td>\n<\/tr>

What’s a "Pyramid or Chain Distribution Scheme?"<\/b><\/p>\n<\/td>\n

A pyramid or chain distribution scheme is a sales device where a person (upon a condition that the person part with money, property, or any other thing of value) is granted a franchise license, distributorship, or other right which allows the person to further perpetuate the pyramid or chain of people who are granted the same right.<\/p>\n

A limitation on the number of people who may participate, or the presence of additional conditions upon the eligibility for such a franchise, license, distributorship, or other right to recruit or upon the receipt of profits, does not change the identity of the scheme as a pyramid or chain distribution scheme.<\/p>\n<\/td>\n<\/tr>

Penalties<\/b><\/p>\n<\/td>\n

Punishable by a fine of up to $5,000, and\/or imprisonment for up to three years.<\/td>\n<\/tr><\/tbody><\/table>\n

Common Examples of Pyramid Schemes<\/h2>\n