In North Carolina, "Pyramid" and "Ponzi" schemes are types of investment fraud. 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 to join the MLM system.
North Carolina Pyramid Schemes
In a pyramid scheme the products or services are gimmicks or overpriced such as health and beauty aids, new inventions, or "miracle" cures.
Here's an example of how a pyramid scheme promoter might try and lure in other members. A promoter will make a claim that you can get rich quick, just like her, by recruiting people to become "distributors" in an exciting new company that sells a wonder weight loss drug. She explains that if you bring people into the business, and they recruit more people, you would earn a percentage of all of their sales. All you have to do is pay a membership fee to join.
Here, the emphasis is on recruiting others with no legitimate product to sell. If a program primarily focuses on recruiting others to join the program for a fee, it is likely a pyramid scheme. Be skeptical if you will receive more compensation for recruiting others than for product sales.
North Carolina Ponzi Schemes
In a Ponzi scheme, the scammer pays old investors with the money he or she gets from new investors. All one has to do is hook a few investors who are willing to get in early on a once-in-a-lifetime business venture. The details of the investment don't matter. What fools people is the promise of fantastic returns on investments.
Here is a brief overview of how North Carolina combats pyramid and Ponzi schemes to protect consumers.
See White Collar Crimes, Financial Crimes, Securities Fraud, Wire Fraud and Property Crimes for more information.
|| NC General Statutes 14-291.2
||Pyramid Nicknames: "Chain Letters" "Cash Gifting Schemes"
|What is Prohibited
Pyramid Scheme: A pyramid scheme is any plan in which a participant (1) pays money (2) for the chance to receive money (3) upon the introduction of new participants into the program, whether or not a product or service is offered.
Ponzi Scheme: A swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks. Generally prosecuted as a federal crime, but can be prosecuted as state-crime under fraud and other state statutes.
|Type of Crime
||Felony or Misdemeanor-varies on nature of the crime
|Who Prosecutes this Crime?
||North Carolina Attorney General, Local Prosecutors
||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:
State laws are constantly changing -- please contact a local consumer protection or a criminal defense attorney who can help you better understand the current North Carolina laws.