by Lawrence C. Melton, Esq., firstname.lastname@example.org
THE HAYES LAW FIRM, www.dhayeslaw.com, 1-866-332-3567, toll free
NCTimes.com reports a massive elder fraud trial began yesterday, August 27, 2007, in the Corona courtroom of Judge Gordon Burkhardt. "Daniel William Heath, 50, of Chino Hilis; his father, John William Heath, 81, of Covina; and Denis Timothy O'Brien, 53, Yorba Linda are accused of running a massive pyramid scheme in which an estimated $191 million was raised." (John Hall, The Californian, An Edition of The North County Times, NCTimes.com, August 25, 2007)https://www.nctimes.com/articles/2007/08/26/news/californian/21_23_088_25_07.txt
There were 1,400 victims nationwide. Many of the victims were senior citizens who invested their life savings. The three defendants face multiple felony charges, and if convicted, would spend the rest of their life in prison. (John Hall, The Californian, An Edition of The North County Times, NCTimes.com, August 25, 2007) https://www.nctimes.com/articles/2007/08/26/news/californian/21_23_088_25_07.txt
A pyramid scheme is an illegal investment scheme structured on a hierarchical setup. The fraudster starts recruiting investors with an offer of guaranteed high return. The earliest investors receive a high return, but the return is not from any real investment. Rather, the gains are paid for by new recruits into the investment scheme.
Most people use pyramid scheme and ponzi scheme interchangeably. The only real difference is that a Ponzi scheme does not have to have the hierarchical structure. In a pyramid scheme, the investors return on his investment comes from money taken from new investors--thus creating a pyramid with the earlier investors at the top and the new recruits at the bottom. In a ponzi scheme the return on the investment can come from alternative sources.
These terms--pyramid scheme, ponzi scheme--are generally used to describe an investment scheme which is not really supported by an underlying business venture. The investors are paid profits from the principal sums paid in by newly attracted investors. Usually those who invest in the scheme are promised large returns on their principal investments. The initial investors are indeed paid the sizable promised returns. This attracts additional investors. More and more investors need to be attracted into the scheme so that the growing number of investors on top can get paid. The person who runs this scheme typically uses some of the money invested for personal use. Usually the pyramid collapses and most investors not only do not get paid their profits, but also lose their principal investments. In re Randy,189 B.R. 425, 437 n.17 (Bkrtcy N.D. Ill. 1995).
See, Reem Heakal, What Is A Pyramid Scheme?, Investopedia.com, Forbes, April 21, 2004. https://www.investopedia.com/articles/04/042104.asp