you should read Case 11 in your textbook prior to beginning this assignment.
Frauds of the Century
1. How do Ponzi schemes and pyramid schemes differ? How are they similar?
2. Why are successful white-collar criminals such as Madoff able to carry out their schemes for so long when similar types of fraud often collapse in an early stage?
3. What should be done to ensure large-scale fraud such as Ponzi schemes and pyramid schemes do not happen in the future?
The original thread must be 200-300 words in length and demonstrate course-related knowledge. In addition to the original thread, you are required to reply to 2 of your classmates’ threads. Each reply must be 150-200 words in length and be substantive in content, adding to the discussion your classmate began in his/her original thread. The case referenced is at the end of the textbook.
THREAD 1: COURTNEY 150 WORDS
Ponzi schemes and pyramid schemes are different in terms of investment. Ponzi schemes typically promise personal gain when you invest financially but leave you financially stranded where as pyramid schemes are compromised of building a “team” to help you reach your desired level of income. They are similar in the aspect of both promise big return but leave you short handed in the end.
White-collar criminals usually come with a reputation of being a once successful big shot, they are charming and able to convince those with little understanding to trust their ideas. They successfully sell the idea that they are the next millionaire with little to not work and people actually buy it. I have to admit I am a sucker for a good story. My husband is usually the one that has to talk me off the ledge and remind me not everyone has my best interest at heart. Long story short, if something sounds too good to be true, it probably is!
I think its really hard to structure something to prevent large scale fraud. I do believe people are more hesitant now, even in terms of multi-level marketing, its sometimes really hard to get people who trust your company or its product. Take for example Herbalife as discussed in the book. They have been under investigation a couple times for accusations of pyramid schemes. I think transparency across the board is the best way to remain reputable and a financially responsible business.
THREAD 2: KAREN 150 WORDS
Let’s begin by defining what is a Ponzi scheme and what is a pyramid scheme. A Ponzi scheme is typically a white-collar crime, where a person offers an investment opportunity but never actually invests the money. A pyramid scheme offers individuals the opportunity to make money through selling a product or investing. Typically, in a pyramid scheme you pay an upfront fee to join.
#1 They are different because in a Ponzi scheme the person is asked to invest, then nothing more. However, in a pyramid scheme they are asked to sell a product and ‘recruit’ more members. There are similarities between Ponzi and pyramid, they are both frauds, neither one will operate as the fraudster is telling them. Both will take people’s money with ill intent.
#2 The ability of Bernard Madoff to be able to carry out his Ponzi scheme for so long was due to the fact the start out as very successful businessman, he was legit in his business dealings at that time. This allowed his victims to put more trust in is fictious investments. He also created a more invitation only type clientele, this of course created more people to want to be part of this circle, and disregarding the signs that something could be wrong.
#3 I do believe that the Federal Trade Commission (FTC) and Securities and Exchange Commission (SEC) should try to do better at monitoring these companies, however at the same time we have to take personal responsibility in our investments and decisions.
