A Ponzi Scheme is term named after Charles Ponzi an Italian man who made a whole lot of money in the United States using this strategy. The characterstics of a ponzi scheme is usually a promise of a extremely high return of funds in a short period of time. For the scheme to work, there has to be a non-stop flow of investors that are willing to put huge funds of money.

The problem occurs with the ponzi scheme when the flow of new investors stop coming in. The system is fraud due to the fact the money being invested is not being put towards any investment opportunities to create a return on investment. Ultimately the more people who get involved, the more likely possibilities of having disgruntaled investors who eventually turn to the proper authorities.

Pyramid schemes are different from ponzi scheme because they tend to use legitimate business practices with some not so legitimate structures. The concept behind the pyramid scheme is that you put make a one time small fee and somehow leverage that fee over again several times. The pyramid scheme becomes illegal when it is structured in a way that the only people receiving the bulk of the money are the originators of the pyramid.

The ponzi scheme and the pyramid share the same similarities when it comes to the fact that the people who come into the programs at the end are always left frustrated without any money. Either way the purpose of a ponzi scheme or a pyramid scheme is prey on lack of knowledge of their naïve investors.

In today’s market they are several opportunities that have been able to use the concept of a ponzi scheme or a pyramid to employ a legitimate structure that suits everyone. One of the ways you figure out if an opportunity is fraud is, if it does not allow you to make more money than the person who recruited you. You should always be able to gain more money from your efforts if you are out performing your recruiter.