What is the difference between a Ponzi and a pyramid scheme?

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There is an old saying that if something seems too good to be true, it probably is. And this is also applies when looking to invest money.

There are a range of investment options to look into – and some may promise to offer great returns with zero risk.

To avoid getting involved in a fraudulent investment scheme, it is important to look out for spurious claims such as these.

Here we look at two of the most infamous investment scams – the Ponzi scheme and the pyramid scheme.

Ponzi scheme

A Ponzi scheme is a type of investment fraud that often promises to invest money and generate high returns with little or zero risk to depositors or investors.

Ponzi schemes generally have no real investment, or the business doesn’t actually exist or does not work in the way described.

In a Ponzi scheme, the “portfolio manager” – the person running the scam – collects money from new depositors/investors to pay off earlier depositors/investors, and typically collapses when no new depositors/investors are found.

The Ponzi scheme is named after Charles Ponzi, an Italian businessman operating in the US and Canada who made this type of scam famous in 1920.

Content retrieved from: https://www.phnompenhpost.com/banking-securities-business/what-difference-between-ponzi-and-pyramid-scheme.

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