Ponzi scheme
Definition
Scam in
which gullible public is enticed with the promise
of very high returns
in a very short time, but is based on paying
off the early 'investors'
from the cash
from (hopefully ever increasing number of) new 'investors.' The whole structure
collapses
when the cash outflow
exceeds the cash inflow.
The originators
of the scheme,
however, usually disappear with large sums a
few days
before the crash.
Named after Charles Ponzi (1882-1949), an Italian immigrant to the US who,
during 1919-20 collected more than fifteen million
dollars
from some 40,000 eager people by promising to double their investment
in 90 days.
pyramid scheme
Definition
Chain-recruiting scam in
which the main objective
is to continuously bring in new members
(euphemistically called sales representatives,
independent
representatives, or even 'investors')
than to sell
anything of real value.
In this scheme,
'A' recruits 'B' and 'C,' who in turn recruit 'D' and 'E' and 'F' and 'G,' who
in turn recruit … and so on. Every new member pays an
entrance fee
(typically called 'investment'
or some other beguiling name) which is divided among his or her recruiter, recruiter's
recruiter, and … right up to the originator
of the scheme. This charade continues until the whole structure
collapses
from the ever growing need
for more and more gullible recruits and everybody (except the promoters
and the early recruiters) loses out. Not to be confused with pyramiding.
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