The terms "pyramid scheme" and "Ponzi scheme" are phrases often used interchangeably to describe investment fraud . However, they are separate and distinct crimes.
In Georgia, a pyramid scheme occurs when investors try to make money by enlisting other investors who, in turn, enlist more people. Typically, participants are asked to pay to join and become a distributor of a product or service. Those who get in early make money from later investors. When the supply of new investors runs dry, however, the entire pyramid collapses and people lose money.
In a ponzi scheme, participants are asked to make an obscure investment with an unreasonably high rate of return. Early investors are paid by the investments of later on investors. The fraudster encourages investors to believe that the investment itself is actually generating the promised rate of return.
Some people confuse pyramid and ponzi schemes with legitimate multilevel marketing businesses (MLMs). MLMs have a real product to sell and don't require consumers to pay anything extra or to join the MLM system. Georgia prohibits pyramid schemes under laws that regulate business opportunities and multilevel marketing.
Here is a brief overview of how Georgia state combats pyramid and Ponzi schemes using state business MLM and criminal laws to protect consumers.
See White Collar Crimes, Financial Crimes, Securities Fraud, Wire Fraud and Property Crimes for more information.
||Georgia Code of Commerce and Trade, Article 15, 10-1-411 through 10-1-417
||Pyramid scheme nicknames: "chain distributor scheme" or "chain referral"
|What is Prohibited
Pyramid Scheme: Directly or indirectly participating in the operation of any multilevel marketing program (MLM) where the financial gains to the participants are primarily dependent upon the continued, successive recruitment of other participants and where there is no legitimate product for sale.
Ponzi Scheme: Generally prosecuted as a federal crime, but can be prosecuted as state-crime under fraud and other state statutes. A Ponzi scheme is a type of pyramid scheme in which the operator solicits investors and promises them a profitable return on investment in a stock, hedge fund or any other investment vehicle. But instead of paying investors with proceeds from actual growth, the operator takes money from new investors to pay the old ones.
|Type of Crime
||Felony or misdemeanor -- varies with the nature of the crime
|Who Enforces the Law?
||Georgia State Attorney General, Governor's Office of Consumer Protection
||State prison or county jail, probation, fines, restitution, community service, injunction, revocation of business license, freezing business assets
There are several federal protections that may be available to you. To learn more about federal consumer protection laws, contact the following agencies:
Get Professional Legal Help With Your Ponzi / Pyramid Scheme Charges
You don't need to be running the scam of the century to find yourself arrested and charged with a pyramid or ponzi scheme-related crime. If you've been accused of defrauding investors or anyone else, now is the time to seek legal advice. A skilled Georgia criminal defense attorney in your area can help you determine your options.