Pyramid schemes work by bringing in new money

The term pyramid scheme refers to a scam where a small group of early investors profits from contributions by a large group of people who join late. South Carolina investors might benefit from knowing how pyramid schemes work and what distinguishes them from Ponzi schemes.

Typically, a pyramid scheme begins when a person or a small group of people puts up some money or starts a company. The venture is pitched as an opportunity to make money fast, and new members pay fees to join. Money from new investors is used to pay off old investors. There is usually no product or service offered by the company, or a product or service is offered but most revenues come from new people joining. Eventually, it grows harder to bring in new members. When members try to cash out, they find there is not enough money there to pay them.

Law enforcement agencies say that Ponzi schemes are not necessarily pyramid schemes because Ponzi schemes promise a well-defined rate of return. However, both pyramid schemes and Ponzi schemes reward early members and punish late investors. These illegal schemes also both need a steady stream of new cash to stay alive.

Someone who has been charged with white-collar crimes might want to speak with a lawyer. Legal counsel with experience in criminal defense might be able to help by communicating with prosecutors and advocating for a plea agreement. In cases where there have been procedural or other errors, a lawyer might argue against the admissibility of prosecution evidence. This could potentially lead to dropped charges or an acquittal.