Pyramid schemes and Ponzi schemes are both notorious types of investment fraud. Victims of pyramid schemes (also referred to as "endless chains") and Ponzi schemes are persuaded to contribute an initial investment by the promise of a high return on their investment. In reality, however, the scheme pays investors from funds contributed by new recruits. The key difference between pyramid and Ponzi schemes is how new investors are recruited.
In a pyramid scheme, the scammer recruits an initial round of investors who are then required to go out and recruit the next round of investors, and so forth. Generally an overpriced product (for example, beauty products, new inventions, or "miracle" cures) acts as a gimmick that is purportedly sold. However, the focus of the scheme isn't selling a legitimate product or service but rather to recruit new members into the pyramid.
Ponzi schemes, named after the con-artist Charles Ponzi, are very similar to pyramid schemes except that the scammer recruits all of the new investors. Here investors are given the "opportunity" to invest in a non-existent fund that promises quick returns. Early investors are then paid with the money invested by latter investors.
Common examples of Ponzi schemes:
The following chart highlights the main provisions of Nevada's pyramid and Ponzi scheme laws (Endless Chain Statute).
|Nevada Revised Statutes section 52.598.100 through 52.598.130: Pyramid Promotional Schemes; Endless Chains
|Contriving, preparing, setting up, proposing, operating, advertising, or promoting any pyramid promotional scheme or endless chain.
What's a "Pyramid Promotional Scheme?"
|Any program or plan designed to distribute property and/or merchandise to participants who pay valuable consideration for the opportunity or chance to receive something of value in return for:
- Recruiting one or more other people to participate in the program, or
- When a person introduced to the program or plan by the participant recruits a new participant for the program
Defenses to Pyramid Scheme Charges
- The business isn't set up as a pyramid promotional scheme
- The defendant didn't contrive, prepare, set up, propose, operate, advertise, or promote the pyramid scheme
- An actual product was being sold, and not just the sale of the plan itself
Federal agencies that prosecute pyramid and Ponzi schemes:
State laws change frequently. For case specific information regarding Nevada's pyramid and Ponzi scheme laws contact a local consumer protection attorney or a criminal defense lawyer.