A PONZI SCHEME promises high rates of return with little or no risk to investors. Unknown to the investors, returns are paid from their own money or money paid by new investors rather than from profit. There is no legitimate investment. This scam will usually pay promised returns to early investors, as long as new investing occurs. Existing investors are often promised extraordinary returns and commissions for bringing in new investors. These schemes usually collapse on themselves as new investments stop and investors lose some or all of their money.
In a PYRAMID SCHEME, participants actively promote the scheme and try to make money solely by recruiting new participants into the program. Participants move up the “pyramid” as new investors buy in. However, when new participants cease to exist, the scheme collapses. Pyramid schemes are often advertised as Gifting or Networking Clubs. Promoters of pyramid schemes refer to “Gifting” and claim that it is legal. If participants enter into a scheme with the expectation of profit - this not a gift exchange. A gift is something that does not involve the receipt of a benefit. Typically, the majority of those who invest in pyramid schemes lose their investment and can become the subject of investigations by the police and Canada Revenue Agency.
Take a look at some red flags that could signal if an investment opportunity is too good to be true.
Investors approached about an investment with these characteristics should make sure to do their research before investing. Do a background check on the individuals or company offering the investment opportunity.