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Delaware Pyramid and Ponzi Schemes Laws

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.

While pyramid schemes and Ponzi schemes are very similar, the key difference lies in the organization of the scheme. In a pyramid scheme 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, 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.

Pyramid and Ponzi Schemes in Delaware

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.

Code Section

Delaware Code subchapter VI: Pyramid or Chain Distribution Schemes

What's Prohibited?

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.

It is also illegal to promote, sell, attempt to sell, offer, or grant participation in a pyramid or chain distribution scheme.

What's a "Pyramid or Chain Distribution Scheme?"

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.

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.

Penalties

Punishable by a fine of up to $5,000, and/or imprisonment for up to three years.

Common Examples of Pyramid Schemes

Federal Agencies that Prosecute Pyramid and Ponzi Schemes

In addition to Delaware's pyramid and Ponzi scheme laws there are also federal laws that criminalize pyramid and Ponzi schemes. The federal agencies that prosecute pyramid and Ponzi schemes include:

Additional Resources

State laws change frequently. For case specific information regarding Delaware's pyramid and Ponzi scheme laws contact a local criminal defense attorney or consumer protection lawyer.

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