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What is a pyramid scheme?

On Behalf of | May 21, 2024 | White-Collar Crimes |

A pyramid scheme is a form of financial fraud that can result in serious criminal charges. When an investment firm faces these types of charges, there can certainly be financial penalties – and some who are accused could even face potential jail time. In other words, this is definitely something to take seriously.

But it’s also not something that happens accidentally. A pyramid scheme is run very intentionally to defraud investors who believe that they have found an exceptionally good investment opportunity. But the scheme will eventually fall apart, and investors who haven’t gotten a return yet will lose all of their money.

How do they pay the large returns?

Essentially, the pyramid scheme takes the money from the initial investors and then pays them artificially inflated returns. For instance, someone may be told that they will double their money in six months. They invest $100,000 and they do get $200,000 back six months later.

However, this isn’t because the actual value of the investment has gone up. Instead, the firm that is running the scheme just takes the money that subsequent investors give them, and they use this to pay back the initial investors. This attracts more people to the pyramid scheme, which continues to grow. But this tactic can only work as long as there are enough new investors, so the bottom eventually falls out.

Criminal defense options

Are you facing accusations of running a pyramid scheme or some other type of financial fraud? If so, it’s important that you understand all of your legal defense options moving forward.