Editing Ponzi scheme (section)

== Similar schemes ==
=== Pyramid scheme ===
A [[pyramid scheme]] is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:<ref name="ponzi" />
* In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. Failure to recruit typically means no investment return.
* A Ponzi scheme claims to rely on some esoteric investment approach, and often attracts well-to-do investors, whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.<ref name="zuckoff2005" />
* A pyramid scheme typically collapses much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive (at least in the short-term) simply by persuading most existing participants to reinvest their money, with a relatively small number of new participants.<ref name="olsson">{{Cite web|title=Ponzi's Scheme: The True Story of a Financial Legend|url=https://www.c-span.org/video/?186251-1/ponzis-scheme-true-story-financial-legend|publisher=C-SPAN|date=7 April 2005|access-date=29 September 2018|author=Zuckoff}}</ref>

=== Cryptocurrency Ponzi ===
[[Cryptocurrency|Cryptocurrencies]] have been employed by scammers attempting a new generation of Ponzi schemes. For example, misuse of [[initial coin offering]]s, or "ICOs", has been one such method,<ref>{{cite book |last=Nestarcova |first=Dominika |date=2019 |title=A Critical Appraisal of Initial Coin Offerings. Lifting the "Digital Token's Veil" |location=Leiden/Boston |publisher=Brill |pages=43 |isbn=978-90-04-41657-4}}</ref><ref name=cryptoatlantic>{{Cite news|url=https://www.theatlantic.com/technology/archive/2017/05/cryptocurrency-ponzi-schemes/528624/|title=The Rise of Cryptocurrency Ponzi Schemes|last=Morris|first=David Z.|work=The Atlantic|access-date=2017-06-28|language=en-US}}</ref> known as "''smart Ponzis''" per the ''[[Financial Times]]''.<ref name=cryptoft>{{Cite web|url=https://ftalphaville.ft.com/2017/06/01/2189634/its-not-just-a-ponzi-its-a-smart-ponzi/|title=It's not just a Ponzi, it's a 'smart' Ponzi|first1=Izabella|last1=Kaminska|date=2017-06-01|website=[[FT Alphaville]]|language=en|access-date=2017-07-20}}</ref> Most schemes have a low recovery rate with investors losing their funds permanently.<ref>{{cite book |last1=Mukherjee |first1=Sanmoy |last2=Larkin |first2=Charles |last3=Corbet |first3=Shaen |date=2022 |editor-last=Corbet |editor-first=Shaen |title=Understanding Cryptocurrency Fraud. The challenges and headwinds to regulate digital currencies |location=Boston/Berlin |publisher=De Gruyter |pages=118 |chapter=Cryptocurrency Ponzi schemes |isbn=978-3-11-071688-7}}</ref> 

The novelty of ICOs means that there is currently a lack of regulatory clarity on the classification of these financial devices, allowing scammers wide leeway to develop Ponzi schemes using these pseudo-assets.<ref>{{cite book |last=Nestarcova |first=Dominika |date=2019 |title=A Critical Appraisal of Initial Coin Offerings. Lifting the "Digital Token's Veil" |location=Leiden/Boston |publisher=Brill |pages=43 f |isbn=978-90-04-41657-4}}</ref> Also, the pseudonymity of cryptocurrency transactions and their international nature involving countless jurisdictions in many different countries can make it much more difficult to identify and take legal action (whether civil or criminal) against perpetrators.<ref>{{cite book |last1=Rao |first1=Sandeep |date=2022 |editor-last=Corbet |editor-first=Shaen |title=Understanding Cryptocurrency Fraud. The challenges and headwinds to regulate digital currencies |location=Boston/Berlin |publisher=De Gruyter |pages=80 |chapter=Mt. Gox – The fall of a giant |isbn=978-3-11-071688-7}}</ref><ref>{{cite book |last=Nestarcova |first=Dominika |date=2019 |title=A Critical Appraisal of Initial Coin Offerings. Lifting the "Digital Token's Veil" |location=Leiden/Boston |publisher=Brill |pages=43 f |isbn=978-90-04-41657-4}} Cf. {{cite web |url=https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 |title=Statement on Cryptocurrencies and Initial Coin Offerings |last=Clayton |first=Jay |author-link=Jay Clayton (attorney) |date=11 December 2017 |publisher=U.S. Securities and Exchange Commission (SEC) |access-date=January 13, 2023 |quote=Please also recognize that these markets span national borders and that significant trading may occur on systems and platforms outside the United States.  Your invested funds may quickly travel overseas without your knowledge.  As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.}}</ref>

The May 2022 collapse of [[TerraUSD]], a [[stablecoin]] propped up by a complex algorithmic mechanism offering 20% yields, was described as "Ponzinomics" by [[Wired (magazine)|''Wired'']].<ref>{{Cite magazine|url=https://www.wired.com/story/terra-luna-collapse/|title=Terra's Crypto Meltdown Was Inevitable|first=Gian M.|last=Volpicelli|magazine=Wired |via=www.wired.com}}</ref> Another example of a well known Ponzi scheme involving cryptoassets was the ICO of ''AriseBank'' or ''AriseCoin'', involving claims about founding the world's first "decentralized bank". The [[U.S. Securities and Exchange Commission|SEC]] successfully recovered the funds stolen in the ICO.<ref>{{cite book |last=Nestarcova |first=Dominika |date=2019 |title=A Critical Appraisal of Initial Coin Offerings. Lifting the "Digital Token's Veil" |location=Leiden/Boston |publisher=Brill |pages=43 |isbn=978-90-04-41657-4}} Cf. {{cite web |url=https://www.sec.gov/news/press-release/2018-8 |title=SEC Halts Alleged Initial Coin Offering Scam |author=<!--Not stated--> |date=30 January 2018 |publisher=U.S. Securities and Exchange Commission (SEC) |access-date=January 13, 2023}}</ref> A similar scheme was perpetrated by the founders of the fraudulent cryptocurrency [[Bitconnect]].<ref>{{cite book |last=Girasa |first=Rosario |date=2022 |title=Regulation of Cryptocurrencies and Blockchain Technologies. National and International Perspectives |location=Pleasantville |publisher=Palgrave |pages=184 f |chapter=Criminal Prosecutions and Civil Litigation Concerning Blockchain Technologies |isbn=978-3-319-78508-0 |doi=10.1007/978-3-319-78509-7}}</ref><ref>For further examples of Ponzi schemes involving cryptocurrencies see {{cite book |last1=Mukherjee |first1=Sanmoy |last2=Larkin |first2=Charles |last3=Corbet |first3=Shaen |date=2022 |editor-last=Corbet |editor-first=Shaen |title=Understanding Cryptocurrency Fraud. The challenges and headwinds to regulate digital currencies |location=Boston/Berlin |publisher=De Gruyter |pages=111–117 |chapter=Cryptocurrency Ponzi schemes |isbn=978-3-11-071688-7}}</ref>

In September 2022, [[Jamie Dimon]], CEO of JPMorgan, described cryptocurrencies as "Decentralised Ponzi Schemes".<ref>{{cite web | url=https://www.finextra.com/newsarticle/41002/jpmorgan-chief-calls-crypto-a-decentralised-ponzi-scheme | title=JPMorgan chief calls crypto a 'decentralised Ponzi scheme' | date=23 September 2022 }}</ref>

=== Economic bubble ===
[[Economic bubble]]s are also similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant until inevitable collapse. A bubble involves ever-rising prices in an [[open market]] (for example [[Stock market bubble|stock]], [[real estate bubble|housing]], [[cryptocurrency bubble|cryptocurrency]],<ref>{{Cite news |url=https://www.ft.com/content/1877c388-8797-11e5-90de-f44762bf9896 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/1877c388-8797-11e5-90de-f44762bf9896 |archive-date=10 December 2022|title=Bitcoin's place in the long history of pyramid schemes |newspaper=[[Financial Times]] |access-date=19 January 2018 |url-access=subscription}}</ref> [[Tulip mania|tulip bulbs]] in the case of the first, or the [[Mississippi Company]]) where prices rise because buyers bid more, and buyers bid more because prices are rising. Bubbles are often said to be based on the [[Greater fool theory|"greater fool" theory]]. As with the Ponzi scheme, the price exceeds the [[Intrinsic value (finance)|intrinsic value]] of the item, but unlike the Ponzi scheme:
* In most economic bubbles, there is no single person or group misrepresenting the intrinsic value. A common exception is a [[pump and dump]] scheme (typically involving buyers and holders of thinly-traded stocks), which much more closely resembles a Ponzi scheme than other types of bubbles.
* Ponzi schemes typically result in criminal charges when authorities discover them but, other than pump and dump schemes, economic bubbles do not typically involve unlawful activity, or even [[bad faith]] on the part of any participant. Laws are only broken if someone perpetuates the bubble by knowingly and deliberately misrepresenting facts to inflate the value of an item (as with a pump and dump scheme). Even when this occurs, wrongdoing (and especially criminal activity) is often much more difficult to prove in court compared to a Ponzi scheme. Therefore, the collapse of an economic bubble rarely results in criminal charges (which require proof beyond a [[reasonable doubt]] to secure a conviction) and, even when charges are pursued, they are often against corporations, which can be easier to pursue in court compared to charges against people but also can only result in fines as opposed to jail time. The more commonly-pursued legal recourse in situations where someone suspects an economic bubble is the result of nefarious activity is to sue for damages in [[Lawsuit|civil court]], where the standard of proof is only [[Burden of proof (law)#Preponderance of the evidence|balance of probabilities]] and where the plaintiff need not demonstrate ''[[mens rea]]''.{{Citation needed|date=October 2022}}
* In some jurisdictions{{which|date=February 2020}}, following the collapse of a Ponzi scheme, even the "innocent" beneficiaries are liable to repay any gains for distribution to the victims{{Citation needed|date=June 2024}}. In this context, "innocent" beneficiaries can include anyone who unwittingly profited without being aware of the fraudulent nature of the scheme, and even charities to which perpetrators often give to relatively generously while a scheme is in operation in an effort to enhance their own profile and thereby "profit" from the resulting positive media coverage. This typically does not happen in the case of an economic bubble{{Citation needed|date=June 2024}}, especially if nobody can prove the bubble was caused by anyone acting in bad faith, moreover a person whose own participation in an economic bubble is not particularly notable is not likely to enhance participation in the bubble and thus personally profit by donating to charity.
* Items traded in an economic bubble are much more likely to have an intrinsic value that is worth a substantial proportion of the market price{{Citation needed|date=June 2024}}. Therefore, following collapse of an economic bubble (especially one in a commodity such as real estate) the items affected will often retain some value, whereas an investment that is part of a Ponzi scheme will typically be worthless (or very close to worthless). On the other hand, it is much easier to obtain financing for many items that are the frequent subject of bubbles. If an investor trading on [[margin (finance)|margin]] or borrowing to finance investments becomes the victim of a bubble, he or she can still lose all (or a very substantial portion) of his or her investment capital, or even be liable for losses in excess of the original capital investment.{{Citation needed|date=June 2024}}

=== Exit scam ===
A Ponzi scheme which ultimately terminates with the operator absconding is similar to an [[exit scam]]. The main difference is that an exit scam does not involve any sort of investment vehicle with the accompanying promised returns. Instead, exit scammers either accept payment for product which they never ship (usually after gaining a reputation for reliably shipping of products) or steal funds held in [[escrow]] on behalf of third parties (the latter often involves the operators of illegal [[darknet market]]s that facilitate the sale of illicit goods and services).