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Is a Ponzi scheme a type of pyramid scheme?

As someone working in New York, you've likely heard of pyramid schemes and Ponzi schemes before. Sometimes, they're lumped together. Other times, people call Ponzi schemes a "type" of pyramid scheme. But is that actually accurate? While these two types of schemes are similar in many ways, they also have a number of fundamental differences.

FindLaw defines a Ponzi scheme as an illusion of profitability which is created by paying early investors with the money that is obtained from later investors. This makes it appear as though the enterprise is growing and returning the profits of original investors. In reality, that isn't the case at all. Rather than any actual investment taking place or any growth occurring, investors are simply paying each other.

Pyramid schemes, on the other hand, involve more people than that. In a pyramid scheme scenario, investors are recruited to sell a certain product or item. That person pays a sum of money to whoever recruited them, and in turn they go out and recruit others. At the end of the day, the people making the most money are those at the top of the so-called "pyramid", which is where the scheme gets its name from. Those on the bottom are the ones holding everyone else up.

Being unwittingly caught up in any scheme can be a big shock when it all comes crashing down. If you've gotten tangled up in this kind of scenario, you may want to contact an experienced legal professional for more information. They're a valuable asset when dealing with issues like embezzlement.

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