What’s the difference between Ponzi and pyramid schemes?

Published January 23, 2023 By admin with Comments 1

It may surprise you to learn that the most common crime in Britain isn’t theft or assault. It’s fraud.

Annually, there are more incidents of fraud (4.6 million) referred to the police than both theft (3m) and violent crime (1.5m) combined. Each year it costs the UK economy more than £137bn. To say it’s rife would be an understatement.

There’s no need for huge alarm, though. The majority of these frauds are fairly low-level affairs. Be it online scams or in-person rip-offs, most grifts are for smallish amounts, most of which can be claimed back in some respect or another. That’s not to diminish the effects of any fraud, the emotional toll can be hefty.

The big losses are seen in investment scams, though. Specifically, pyramid and Ponzi schemes. Average losses are around the £50,000 mark. What’s worse is that we’re seeing an exponential rise in both kinds of investment fraud. According to the Office for National Statistics, the past year alone has seen an extremely worrying rise in both pyramid and Ponzi schemes of almost 60%.

With these sorts of investment rackets being more commonplace, it may pay for us all to be just that little bit wiser about what they are, how they work, and the best ways to spot and avoid them.

Ponzi and pyramid schemes are pretty similar so it’s very easy to confuse the two. There are, however, key differences.

They’re both investment scams that promise things they very often can’t – and don’t – deliver. They’re both illegal and capable of ripping off huge numbers of people for quite substantial amounts of money.

In order to work, both swindles require the near-constant recruitment of new investors/victims and each begins to fail when new investors dry up. The main difference is just how active the investors are in the recruitment process.

Content retrieved from: https://www.crimeandinvestigation.co.uk/articles/whats-difference-between-ponzi-and-pyramid-schemes.