Pyramid scheme

As a Ponzi scheme or pyramid scheme business models are referred to an ever-growing number of participants required for operation analogous to a rolling down the slope, while steadily growing snowball. Gains for participants arise almost exclusively in that new participants involved in the systems and invest money. Pyramid schemes are special cases of systems that rely on infinite growth with finite conditions and therefore fundamentally unstable.

In most countries, these systems are ( at least partially ) banned now.

Different, but often wrongly described as a Ponzi scheme is a Ponzi scheme, the interest that investors receive for an investment, are taken from their own deposits.

Molding

Heart and Schenk circles

In models such as the heart or Schenk circles, and in comparison to pyramid schemes referred to as pyramid schemes, the lack of sustainability of the model is very open. We do not offer actually valuable products or services. New subscribers have to pay an entry fee to the person who has them advertised for the cardio. This amount keeps the recruiter to a different proportion depending on the model. Often the person who advertised the buyer obtains ( " Advertisers level 2 " ) an additional interest. The new competitors start now turn to recruit new members. If they have a sufficient number of new participants recruited, their own membership fee pays for, and they make a profit. An early example in Germany was the ducats firm founded in 1746.

Well-designed pyramid schemes grow more slowly and collapse by either government intervention or to -spread knowledge gain among potential new customers. Pyramid schemes are easy to recognize in the rule so that new customers can be warned. It is increasingly difficult over time to recruit new members who fall on the system. Gradually the proportion of members who can no longer recoup their investment rises. The system collapsed when the previously successful members give up and change the system.

The collapse takes place naturally, since the total deposit or the number of participants would have to grow exponentially, which is not possible in a world of limited resources in the long term. Must be a new participant recruit 2 members, it will be in the 2nd stage 4, in the third stage 8, in the fourth step 16, etc.. In the 10th stage, there are already over 1000, in the 20th over a million.

Pyramid Schemes

In contrast, in pyramid schemes products are passed from top to bottom, it does not involve a price increase. A recruits B, B at A must buy ( this will cost B eg 50 cents more than in A), B can resell this product now, or advertises C, receiving the product now from B (50 cents more expensive a product ) and so on. This only works up to a certain price, the system for the lowest then collapses. The dangerous thing about it is the product flow from top to bottom in width, the passing on of products from A to B to C and the change in prices.

Multi -level marketing

Difficulties often arise with the definition of illegal pyramid schemes to legally structure marketing or multilevel marketing. The transition is smooth and partially dependent not only on the design of the rules but also their factual implementation. Basic question of the delimitation is: Would the customer to purchase the product offered, even if he did not receive a commission for referring new customers?

In a snowball system regularly is the income opportunity for the recruitment of new customers in the foreground. This is already in the speech: In pyramid schemes are advertised with money-making opportunities rather than consumer products. At laden multi -level marketing, the product is sold primarily to consumers who are not also part of the distribution system, or it will set up a legitimate consumer network in which the partners are the same consumers. Here possibly saved costs for transportation of goods, advertising and other operating expenses ( non-wage labor costs, rent of business premises, wholesale margin, etc.) can be saved and instead distributed as a bonus to the sales partners.

Evidence of an illegal pyramid scheme are:

• Earning opportunities consist primarily of the benefits that are granted for the recruitment of new members, it is often of so-called " passive income " spoken (or " selbständigem income ").
• The product sold is overpriced.
• The trading margin or sales commission is responsible for product and industry unusually high.
• There are hardly any customers who would purchase the product at a similar price without commission prospects.

In Switzerland, is set down primarily to the criterion of exclusivity ( according to the first criterion): If a payback of entry sum exclusively on the recruitment of new members is possible, it is a pyramid scheme. This case depends on the possibility of a return on investment of the existing market saturation, that is, the new member runs the risk of failing in a saturated market on the payback, because a sufficient number of new members can not be found. Is that a new member of the degree of saturation of the market can not judge and ultimately plays in the payment of his admission to the sum coincidence is the " lottery-like element " that underlies the prohibition of pyramid schemes.

Conditioning systems with snowball character

These include investments, are promised for the very high returns, but exist only on paper. If investors recover money they paid out for some time. However, the payments can only be financed by the proceeds of other investors are used for this. Value-enhancing transactions or real investment there is not in these investment models. The system breaks down when a larger number of investors trying to recover their contributions.

In the professional world Ponzi scheme and Ponzi game be partially used interchangeably.

In the 1920s, succeeded Charles Ponzi in the U.S. within about six months, according to the current value to collect about 150 million U.S. $. The investors was suggested by sham investment that yields were actually earned. Charles Ponzi claimed to have developed a unique business model that enables the returns.

1997 were caused by pyramid schemes in Albania severe unrest. As with all pyramid schemes, investors were offered very high returns on their investments. Many families have invested all their assets, often houses were mortgaged. A total of U.S. $ 1.2 billion was invested. The companies in Albania led true Ponzi model isolated sham investments with the aim of to audition to investors that the promised yields have actually been achieved.

The Turkish company Yimpas campaigned with faith as a hallmark among Turks living abroad in Europe. About 50 Turkish Holdings acquired preferably in mosque associations in the period from 1997 to 2002 between 5 and 50 billion euros to the so-called " Konya " model. The investors was suggested that they would invest their money according to the precepts of Islam, also they would with their investments create jobs in Turkey and achieve high returns.

The biggest such plant system was in December 2008 by the Madoff scandal ( Bernard L. Madoff ) known and damaged by a supposed hedge funds to its investors a total of about 65 billion dollars. On 29 June 2009, Bernard L. Madoff was sentenced to 150 years in prison because of that. However, Madoff's fraud had more the characteristics of a Ponzi scheme: he paid the dividends to its investors from their own capital, but was not forced to constantly find new investors. His system worked for over 15 years - which would be unlikely to result in a classic Ponzi scheme - because he spilled true constant, but not extremely high dividends and thus special attention and suspicions could avoid long time.

In Germany fell in 2010, the company GFE- Group ( Headquarters: Nuremberg and Switzerland ) in the sight of justice on suspicion of running a Ponzi scheme. The GFE Group sold CHP, which will then be rented by a sister company for years to a guaranteed monthly rent of 2.5 % of total investments. The high revenue ( 30 percent return per year ) should be generated powered by an extremely high efficiency of rapeseed oil CHPs. These performance data suggested unrealistically high electrical efficiencies of over 75%. Without being able to demonstrate a working prototype, the company took from 1400 customer funds in the amount of 62 million euros against and paid the first installment of the promised returns. Finally, on 30 November 2010, there were raids on 28 commercial and residential spaces in which 7 people were arrested from the Executive. The trial of 14 current 52 accused began on 24 September 2012 the Landgericht Nürnberg- Fürth.

The economist Laurence Kotlikoff of Boston University designated in April 2011, the retirement system in Western industrialized countries, in particular in the U.S. - as a Ponzi scheme. The payments to old people would depend on the steady influx of young contributors, who was now no longer given in the United States. This criticism is, however, according to the view of Horst Kaesmacher and other only applicable when certain - for questionable in his view - Assumptions goes: How about that one assumes a constant rate of contribution and at the same time assumes that the nominal pension rights in the future - the amount of - at least not decrease. Is also not considered that contribution gaps are closed by grants from tax revenues. At the level of government debt, it is in principle not to, as long as the state budget through money creation can be co-financed, which is the case but just in the USA.

On 20 September 2011, the New York Attorney Preet Bharara called the online poker service Full Tilt Poker in a press release as massive Ponzi scheme. Full Tilt Poker did not have sufficient capital reserves to pay all players. In November 2010, customer assets were 344 million USD bank balances of $ 145 million compared to. In April 2011, were offset by $ 60 million accounts receivable of $ 390 million. The allegations relate to different offenses in business operations, not on the actual poker game.

Historical and Legal Aspects

The distribution of goods in the Ponzi scheme is not an invention of the 20th or 21st century. Even in the monarchy were from commercial circles repeatedly lawsuits against so-called " snowball Collections" loud. The system worked so that the customer was promised when purchasing the goods to bring in a portion of the purchase price paid again when he. Instructions on a certain number of other purchase transactions, which he had to purchase the reqired to further sold a certain amount of potential new customers Such instructions are called coupons. Again and again the people in the media from these practices has been warned:

In Germany, such systems of § 16 para 2 of the Law against Unfair Competition ( UWG) is recorded: " Whoever undertakes in the course of trade, to induce consumers to purchase goods, services or rights by the promise that they would either by the organizer gain or by a third party special benefits when they cause others to conclusion of similar transactions, which are intended to achieve such benefits to be advertising of other buyers on the nature of such advertising, shall be punished with imprisonment up to two years or a fine. " The offense is designed as a so-called corporate crime and as an abstract endangerment offense. That is, it does not even cause harm. Already the " attempt " to call a snow ball into life, is punishable by law. Legal point of view there is therefore no attempt within the meaning of § 22 of the Criminal Code, as trial and completion coincide. A criminal offense because § 263 of the Criminal Code (fraud ) fails, however, usually because the parties were not misled about the content of the game. Injured party may place their bets according to settled case law of the Federal Court with regard to the moral standards of such systems based on the principles of unjust enrichment (§ § 812 ff, § 817 BGB ) or by tort principles (§ § 823 ff, § 826 BGB) to reclaim without being prevented from doing so by § 817 sentence 2 BGB.

Tax purposes the amounts credited to the participant (apparent ) are profits from the Ponzi scheme but in accordance with § 20 Section 1 No. 4 of the Income Tax Act to tax. This is the Court of Tax Court Münster also called Schenk circles.

Pyramid schemes are in Austria pursuant to § 168aVorlage: § / Maintenance / RIS Search Criminal Code prohibited since March 1, 1997: The punishment is up to six months; there are many injured, could face up to three years in prison.

In Switzerland functioning Events by Article 43, Section 1 of Regulation lottery prohibited by the snowball system. The punishment includes imprisonment to three months and penance to 10,000 francs (Article 38 Lottery Act ). Depending on the structure and functioning is also a violation of the Act, against the Exchange Act, against the Collective Investment Schemes Act or of the Money Laundering Act in pyramid schemes. So is the pursuit of requiring a permit banking, securities dealer or financial intermediary activity forbidden without authorization of the Swiss Federal Banking Commission.

Other meanings of words

From snowballing one speaks in terms of Scientific Work even in literature searches, from an already known title lead starting to more thematically relevant publications by the bibliography or footnotes are evaluated in publications. As a first output source for the literature search with the snowball system one chooses a possible date and general work like a dictionary entry, an elementary textbook or a textbook. In the publications found by repeating the procedure whereby one progresses from general to specialist literature and ever- deeper into the subject. Compared to a systematic search in bibliographies and databases, the Ponzi scheme has the disadvantage that only older publications can be determined as the output source. There is also the risk that predominantly publications are found, representing a particular view and mutually quote (so-called Zitierkartelle ) so that a one-sided picture arises when the Ponzi scheme is not supplemented by other methods or not started from several different starting points is.