Pyramid Schemes Vs Ponzi Schemes

The term Ponzi scheme was named after Charles Ponzi, a con man from the 1920s. Ponzi began his “business” by buying and selling international reply coupons. He was able to persuade some friends to invest in this endeavor, by telling them that he could double their investments. Essentially, Ponzi made no profit off of this scheme because the circulation of money from new investors is what sustained his “business”. Unfortunately for Ponzi, many investors and the media began to question the legitimacy of such high returns and his sudden rise to success and wealth.
Ponzi schemes promise investors a return on their investment, whereas pyramid schemes derive their profits from establishing a fee to join their program and encourage existing members to recruit others. The new recruits in pyramid schemes are the ones that have the most
“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.”
Oftentimes, the leader of Ponzi schemes are the most respected and trustworthy businessmen. The most notable of these was Bernard Madoff. He is known to have orchestrated the largest financial fraud in U.S. history. In 1960, Madoff opened his business, Bernard L. Madoff Investments LLC., with the help of his father-in-law. His investment company dealt directly with retail brokers in the stock market. Madoff was able to successfully run his business from 1960 until 2008.
His business practices were first questioned in 1992 when an SEC lawyer found numerous discrepancies. However, this first case of suspicious activity was dismissed. Finally on December 11, 2008, Madoff was arrested for creating the fraud of the century. “He estimated the losses from this fraud were at least $50