Ponzi Pyramid Scheme Case Study

QUESTION 2
Start the question by defining a Ponzi and a Pyramid scheme;
A Ponzi Scheme:
"A con artist offers obligations that promise very high returns at seemingly very low risk from a business that does in fact exist or a secret idea that does not work out. The con artist helps himself to the investors' money, and pays a promised high returns to earlier investors from the money handed over by these and later investors. The scheme ends when there is no more money from the new investors"(Frankel, 2009, p.2)
A Pyramid scheme:
"An illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, given to the earlier investors/recruits above them." as reported by
…show more content…
They can be understaffed and under resourced so do not have the capacity to investigate any complaints or red flags raised by stakeholders. The regulatory bodies themselves can also be corrupt which leads to a further failure to identify and eliminate any fraudsters from the market. Regulatory body failure should also be considered before only blaming the investor.
From a psychological point of view people tend to trust their close friends and family. It is why both Pyramid and Ponzi schemes defraud clusters of people who knows each other for example all the people who are members of a country club may be victims of the same Ponzi scheme at the same time.
In conclusion the trust in the finance industry, economic climate, failure of regulatory bodies and biological barriers like trusting of family and in-groups needs to be taken into account before solely blaming the investor which has been defrauded in a Ponzi scheme.

Investopedia. (2015) What is a Pyramid Scheme [Online] Available from: http://www.investopedia.com/articles/04/042104.asp [Accessed: 9th June
…show more content…
(2015) What is the difference between a Ponzi and a Pyramid Scheme [Online] Available from: http://www.investopedia.com/ask/answers/09/ponzi-vs-pyramid.asp [Accessed: 9th June 2015]
Investopedia. (2015) Pyramid Scheme [Online] Available from: http://www.investopedia.com/terms/p/pyramidscheme.asp#ixzz3cvnGNpaj [Accessed: 9th June 2015]
Kahn Academy - Ponzi Schemes (2011) Directed by Jonathan Horn. [Video] Kahn Academy
Lewis, M (2012) New dogs, old tricks. Why do Ponzi schemes succeed? Elsevier. p

Related Documents