| The
words “Ponzi” and “Pyramid” are often
used interchangeably but, as evidenced by the examples provided,
they are different – the principal difference being
that a Ponzi scheme has only one “official” promoter.
Otherwise,
they have much in common. Both are fraudulent “investment
schemes” promising unrealistic returns on investment
capital, both typically encourage investors to reinvest their
profits, both depend upon new investors to satisfy their obligations
to prior investors, both are continually insolvent and both
are against the law.
Ponzi
Schemes invariably involve a material misrepresentation as
to the nature of the investment, but a Pyramid Scheme may
not. Those who invested their money with Ponzi Scheme operators
like C. Philip Elliot, David Mobley and Charles Ponzi, or
Pyramid Scheme promoters like Activator Supply Company, fully
believed that these fraudulent promoters had discovered or
developed a “system” for making money that generated
extraordinary returns on investment.
On
the other hand, those who invested in Pyramid Schemes like
“chain letters” and the previously referenced
Galaxy Program promoted by Prosper International League, Ltd.,
knew that their profits were derived solely from contributions
of subsequent investors.
The
victims of a Ponzi Scheme are innocent victims, but the victims
of Pyramid Schemes victimize others in that they directly
promote the criminal enterprise. They may, or may not, be
criminally culpable and/or civilly liable, depending upon
their understanding of the system. Those who legitimately
believe in an underlying structure that serves to create something
of value to consumers (like Activator Supply) are innocent
victims, but those who promote programs like chain letters
and the Galaxy Program are perpetrating and promoting a crime.
I welcome
your comments,
questions and suggestions.
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