Ponzi and Pyramid Schemes

Question 1

What is a pyramid scheme?

Answer 1

The scheme in which participants rely on recruiting new participants for income

Question 2

Who makes the most money in a pyramid scheme?

Answer 2

The people at the top

Question 3

Do participants in a pyramid scheme know they are a part of it?

Answer 3

Yes

Question 4

If the primary source of income is from sales, is it legal?

Answer 4

Yes

Question 5

If the primary source of sales is recruitment, is it legal?

Answer 5

No

Question 6

If the value of the product is at market price, is it legal?

Answer 6

Yes

Question 7

If the value of the product is above the market price, is it legal?

Answer 7

No

Question 8

What is a Ponzi scheme?

Answer 8

A form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds.

Question 9

What are the differences between a Ponzi scheme a Pyramid scheme?

Answer 9

Ponzi Scheme:

• Investors DO NOT know they are being defrauded
• Participants DO NOT expect money for recruiting

Question 10

What are some red flags of a Ponzi scheme?

Answer 10

• Guaranteed promise of high returns with little risk
• Consistent flow of returns regardless of market conditions
• Investments that have not been registered with the SEC
• Investment strategies that are a secret or described as too complex
• Clients are not allowed to view official paperwork for their investment
• Clients facing difficulties removing their money