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- a Ponzi scheme is similar to a pyramid scheme but operates in a different manner. Under a Ponzi scheme, victims are induced to enter the scheme with the promise of reward. But their contribution is used to pay returns to previous victims. There is no, or no substantial, investment undertaken. Victims who join the scheme early and get out early are often used to promote the success of the scheme.
The Anti Money Laundering Network defines a Pyramid Scheme as
- a pyramid scheme is a particular form of abuse of the network marketing model. Under a pyramid scheme, victims are required to purchase a substantial quantity of a product which they often find hard to sell. But they can offset their purchase price, and they are promised additional and often substantial returns if they introduce more victims to the scheme. The factor that marks out a pyramid from a lawful network marketing scheme are
+ the requirement to buy stock in anything more than sample quantities; coupled with
+ rewards for introducing others who buy substantial quantities of stock.
In short: if you will make more money from bringing in new "distributors," than from selling product directly, the chances are that it's a pyramid scheme.
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