Essays on How Ponzi and Pyramid Schemes Differ Case Study

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The paper "How Ponzi and Pyramid Schemes Differ" is a good example of a business case study.   It is a study of two frauds of a century that are the Ponzi and pyramid schemes. The work focuses on how the schemes were conducted by schemers to make money. The purpose of the study is to study and analyze how the schemes get money from people, how they differ and their similarities. Most importantly is how they differ as most individuals cannot differentiate between the two. It is, therefore, very important to distinguish between the two.

Additionally, they have some similarities that are very close for one to differentiate. The similarities are also stated clearly to clear any doubts. The study is explorative in nature as it explores all the aspects of these schemes. The white-collar criminals or rather schemers establish themselves as trustworthy as respectable figures. As a result, many investors didn’ t think twice to invest their money into the schemes. In the long run, schemes collapse and the investors lose their investments in return. Victims of these frauds trust the clients and believe there are sufficient balances and checks to certify that an operation is legitimate.

For example, Bernard Madoff was a well educated and experienced individual in the position of respectability, responsibility, power and trust. He abused his trust for personal gains. Schemers of both the Ponzi and pyramid fraud schemes used promises and deception to carry out their scams. The study also comes up with the recommendations that should be done to curb such large scale fraud from happening in future. 1.0 Introduction 1.1 Background and purpose of the study. There are two main frauds of the century in the world.

One is the Ponzi scheme which became a front-page headline in December 2008. It was never realized by the average consumer for decades until the rise of a prominent respected securities trader Bernard Madoff. He admitted to having been operating a Ponzi scheme for than a decade. Also, the chairman and CEO of Petters worldwide named Tom Petters was also arrested for alleged Ponzi scheme in October of the same year. During the same year, R.Allen a respected financier was also detained for the same scheme that cost investors seven billion dollars.

A Ponzi scheme is, therefore, a type of crime that occurs when a criminal allegedly takes money from new investors to pay earnings for existing investors. The money is never invested as expected and, in the long run, when the scheme collapses for one reason or another, the new investors usually lose their investment. Another fraud is the pyramid scheme which is illegal. However, they are hard to detect. They occur when there are no sustainable investments or legitimate products to sell.

Just like the Ponzi schemes, the pyramid also collapses faster because it requires increased potential participants to sustain it. A pyramid offers an opportunity for individuals to make money through effort. It is usually a form of business, product opportunity or investment. It works in a manner that the first person recruited in turn recruits more people. The process of recruiting more people has a financial reward. The key aspect of a pyramid scheme is that people pay to get involved. Each new member joins a group that is believed to be a legitimate opportunity to get good returns.

Unfortunately, this is how criminals or rather fraudsters get money.

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