One type of white-collar financial crime is known as a pyramid scheme. This is a form of fraud that seeks to siphon money from well-meaning investors. It is illegal to run a pyramid scheme, so anyone who is caught doing so could face serious charges, fines and even the potential of prison time.
With a pyramid scheme, investors are promised hefty returns over a short time. For the initial investors, this actually works out. They get the returns that they’re expecting, making it appear that this wasn’t a pyramid scheme at all – it was just a good investment opportunity. If someone doubles their money in a month, they may just assume they’re lucky to have found such a good investment option.
But the returns that they see aren’t actually coming from any investments. Instead, the person running the scheme simply takes the money from the newest investors and uses it to pay returns to the investors who have been there from the beginning.
Why does it fall apart?
A pyramid scheme is always doomed to fall apart eventually. It only works as long as the organizer can keep bringing in new “investors” so that they can pay the people at the top of the pyramid. But when those new investments dry up, there’s no more money to pay the returns and the scheme crumbles. Inevitably, investors caught in the middle find that their money was given away and that there’s nothing left.
Pyramid schemes can be very complex and evidence often includes paper trails and electronic documentation. If you are facing these types of allegations, be sure you understand your criminal defense options.
