Ponzi schemes are similar to pyramid schemes because both are illegal in the United States and both depend on continuous recruiting. However, the difference is that there aren’t products or services to sell in a Ponzi scheme that can generate any commissions and the recruiter uses the up-front fees (the advertised initial investment) paid by new recruits to provide the promised high rate of return to existing members for their advertised short term investment. Sometimes these are referred to as “Peter-Paul” scams because of the saying “borrowing from Peter to pay Paul.” Simply, the Ponzi scheme uses the money from recent recruits to pay earlier recruits. These schemes aren’t an alternative to multi-level marketing programs, traditional income strategies or investment strategy programs.
Multi-level marketing programs are legitimate and can be very profitable for all members. Their representatives have marketable products or services to sell to the general public without requiring customers to join the company. Their representatives receive commissions only from the sale of products and services they sold themselves or from the sales of representatives they recruited. MLM representatives don’t earn commissions from the number of recruits.
Ponzi schemes seem to need some mystery surrounding them since they don’t have a product or service to advertise. Members can claim their company or program has “a secret plan”, “an overseas connection”, or a special relationship that is awkward to verify. If the company representative can’t tell you exactly what the company does and how it does it in simple language except for how you will make money through your initial investment, avoid it. It is most likely a Ponzi scheme.
Eventually Ponzi schemes collapse because more and more new recruits are needed to pay previous recruits. The number of recruits eventually required to maintain the payment schedule will be unattainable. Ponzi schemes eventually ask recruits to wait for their promised money. They can claim they are still in the pre-launch or discovery stage and it is expected to take-off any day now. Of course, it doesn’t and never will but the victim recruited doesn’t know that yet. Earlier recruits are working hard to gather the money to pay later recruits by convincing more people to join and supply the initial investment. The majority of persons involved lose their money in a Ponzi scheme.
You can file a complaint with the Federal Trade Commission in the USA or with the RCMP in Canada. Remember, “if it sounds too good to be true, it probably is.” Recognize the majority of scams from this article.