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Pyramid schemes vs. Ponzi schemes

On Behalf of | May 5, 2021 | Criminal Defense |

Many California residents who are seeking to grow their wealth will invest their money in various investments. Unfortunately, sometimes these investments can be scheming in nature and take advantage of the investor. The two most common types of investment schemes are the pyramid scheme and the Ponzi scheme.

What is a pyramid scheme?

A common type of case fought by white collar criminal defense lawyers is the pyramid scheme. In this type of investment fraud, there is an initial schemer who recruits a set number of investors. Each new member pays an upfront cost to join. Each new member is expected to recruit a set number of new members below them. All the entry fees get passed to the top-level members of the pyramid scheme. This type of investment fraud basically uses newer, lower-level investors to fund fraudulent operations at the top.

What is a Ponzi scheme?

Ponzi schemes are one of the most commonly known types of investment fraud. In this type of fraudulent investment, there is a portfolio manager to who people give their investment funds. This portfolio manager promises them high returns on investments. However, the portfolio manager does not actually put the incoming funds that he receives into investment accounts. Rather, the portfolio manager uses the incoming funds to pay out previous investors. This type of scheme simply transfers money from one person to another without any sort of investment activity going on.

There are many different types of investment fraud out there. It’s not uncommon for individuals to fall victim to both pyramid and Ponzi schemes without realizing it. If you’ve been accused of being involved in one of these types of schemes, it’s a good idea to contact an attorney to help fight your case.