Both Ponzi and pyramid schemes are fraudulent investment programs created to earn a considerable amount of money from investors. According to The Investor, Ponzi schemes, however, investors are made to believe that their money gets put to work, and it is a real investment.
With pyramid schemes, on the other hand, participants believe that they are running a multi-level marketing business where they have to bring new members to make more money, and even get back their initial investment. The higher you are in the scheme, the more money you will be making at the expense of those at lower levels.
Unfortunately, all those lower on the system never get new investors, and they waste time and money trying to get new investors. When they can no longer get recruits, the pyramid collapses. In both investment schemes, older investors get money from later investors.
Over the past few years, people have been confusing pyramid schemes and Multi-Level Marketing businesses. With these MLMs, the distributors get income from their sales and that of the sales group they recruit. It is a payment method known as a downline. In such businesses, the customers are not representatives of the company.
If you get arrested for running a Ponzi or pyramid scheme, it may get charged as a misdemeanor or a felony depending on the level of the crime, and the amount investors have lost. In most cases, you could get sentencing of between 16 months to three years in the county jail. You may also serve in community services, pay fines, and get into probation.