BIFRANCHISE
| Joined: | 2009-02-16 |
| Location: | |
| Posts: | 1281 |
| Status: |
Offline
|
|
Ponzi Scheme – an illegal business practice in which new investors’ money is used to make payments to earlier investors.
Illegal Pyramid – fraudulent scheme in which people are recruited to make payments to the person who recruited them while expecting to receive payments from the persons they recruit; when the number of new recruits fails to sustain the hierarchical payment structure the scheme collapses with most of the participants losing the money they put in.
The differences between an illegal pyramid scheme and a Ponzi scheme are:
1. prosecuted under different laws
2. illegal pyramids are promoted as pyramids where operators make the bulk of participants’ earnings dependent on recruiting, and emphasize levels and stages in their promotions
3. Ponzi schemes are promoted as investment opportunities where operators claim they’re offering an investment opportunity, but conduct little or no commercial activity
Categories of Illegal Pyramid and Ponzi Schemes:
• Pure Cash Schemes
1. Endless Chains – where the recipients of the letter sends a sum of money ($5, $50, $100, etc.) to the person who mailed them the letter, then pass the letter on to three or four others. Studies have shown that up to 95 % of the players in a pyramid WILL LOSE MOST OF THEIR MONEY. Fully half can expect to lose everything they put in. Some Internet chains are known as “administered” pyramid schemes – every exchange in the chain is monitored by a central administrator, who makes sure everybody’s playing and paying along.
2. Fill-and-Split Schemes – using gaming elements to keep players’ attention focused on their riches or to capitalize on the phenomenal profits over the last 15 years by the American stock market.
• Product Fronts
1. Financial Instruments – stocks, borrower’s certificates, currency exchanges, loan scams, and investment pools
2. MLMs (Multi-Level Marketing) – nutrition supplements, household goods, cosmetics, television antennas, insurance, long distance phone service, etc. Generally, any organization which recruits distributors into a pyramid-style compensation plan, and/or offers big payoffs for recruiting (say, more than $100 per recruit), and/or spends more time trumpeting its distributor levels than its product lines
3. Speculations – franchise offerings and business opportunities in general, work-at-home promotions, and investments in areas like real estate or mineral rights
Spotting Illegal Pyramid and Ponzi Schemes is relatively easy. Usually the schemes:
• do pay off, thus making excellent promotions and testimonials. Early players circulate the word and bring in new marks. Initial payoffs also keep early players coming back. Payoffs make the enterprise look legitimate, and fuel the expansion process.
• operate mainly through pre-existing affiliations. Community groups, religious organizations, and social clubs all make enticing targets for fraudsters.
• use ingenuity and false logic in their pitches. The product fronts available for pyramiding are myriad, from bath soap to electronics. Fronts in financial instruments and real estate are especially effective because most people don’t understand how those businesses work anyway.
• have time limit – get in NOW, or regret it forever
• based on greed – excessive desire to acquire or possess more (especially more material wealth) than one needs or deserves
|
