Pyramid schemes

PUBLISHED : Monday, 05 January, 2009, 12:00am
UPDATED : Monday, 05 January, 2009, 12:00am
 

A Ponzi scheme is often mistaken for another type of white-collar crime - the pyramid scheme. However, there is a basic difference. In a pyramid scheme, an investor pays the organiser a sum of money, and is then promised a commission if they recruit more investors. Thus every member benefits from the ever-growing pyramid except for those at the bottom who cannot find anybody to recruit. At this point, the original promoter cannot raise enough money from new investors to pay off the earlier investors. For example, Bob finds 10 people to 'invest' HK$100 each in his scheme. He tells them that they will make HK$300 if they can find 10 more people each to join the scheme. This results in a total of 100 people, and now Bob has HK$10,000, and he only has to pay out HK$3,000.

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