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Ponzi and pyramid schemes

Ponzi and pyramid schemes are, in fact, messages which tell you how for a small investment you
make huge amounts of money. The concept for the chain-letter-based pyramid scheme is to collect
payment from a large number of people, because the number of new participants is growing in an
exponential rate. A pyramid scheme is, in fact, a scheme in which a hierarchy is created by people
joining under others who joined previously and in which those who join make payments to those
above them in the hierarchy, expecting at the same time to collect payments from those who join
The Ponzi scheme is similar with the pyramid one. This one is an investment scheme in which returns
are paid to earlier investors, entirely out of money paid intro the schemes by newer investors. The
scheme is named after Charles Ponzi who became notorious for using the technique in early 1920.
The differences between these two schemes is that the Ponzi ones are operated by a central
company or person, who may or may not be making other false calims about how the money is being
invested and where the returns are coming from so they dont really need a hierarchal structure, like
pyramids do.
A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not
from any actual profit earned by the organization, but fom their own money or money paid by
subsequent investors. The system of a Ponzi scheme is destined to collapse because the earnings, if
any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities
before it collapses because a Ponzi scheme is suspected or because the promoter is selling
unregistered securities.
Similar schemes with the Ponzi can be the pyramid scheme, the bubble and the Robbin Peter to pay
Paul. A bubble is similar to a Ponzi in that one participant gets paid by contributions from a
subsequent participant but the difference is that a bubble involves ever-rising prices in an open
market where prices rise because buyers bid more because prices are rising.
The Robbing Peter to pay Paul happens when debts are due and the money to pay them is lacking.
It does not follow that this is a Ponzi scheme, because from th basic facts set out there is no
indication that the lenders were promised unrealistically high rates of return via claims of unusual
financial investments. Nor is there any indication that the borrower is progressively increasing the
amount of borrowing to cover payments to initial investors.
A notable ponzi schemes we can say that in 1930s, Ivar Kreuger built one defrauding investors based
on the supposedly fantastic profitability, but the scheme collapsed. Also, in 1990s, in Romania, Ioan
Stoica, the owner of Caritascompany of Cluj-Napoca promised eights times the money invested in
six months. It attracted a lot of depositors from all over the country with great investitions but then it
went bankrupt and the owner was sentenced to prison for fraud.
The MLMs are de facto pyramid schemes: only a few at the very top make money, by getting it from
the dowline. MLMs are based on a products like all kinds of quack-based lotions and potions which
cost almost nothing to produce but they are sold with a lot of money. To consume them, its easier
and cheaper to become a seller. Some examples are products from Herbalife, Privatest and Seasilver.