Ponzi scam is similar to Pyramid scam but on a larger scale. It involves money far bigger than what’s involved in pyramid scam. This is why there are more lawsuits being filed against the ponzi scammers than pyramid scammers.
The way ponzi scam works is by convincing you to “invest” or give your money to them in exchange of outrageous return such as 5% or more every month. For example, if you give them $10,000 dollars they will promise that it will earn $500 or more every month. Some even promise that you money will double in a year. This kind of profit is almost impossible to get from investing through legitimate means without taking life ruining risks.
During the first few months after giving them your money, the scammers will give you your profit through cash or by issuing a cheque. You will then think that you are indeed making that much profit and that the money you invested is still intact. What victims don’t know is that the first few “profits” they receive are coming from the same money they gave to the scammers. Eventually the money will run out so the scammer will run away before that, taking whatever is left with them which is a lot since the money involved is huge.
During the first few months when you are receiving your “profit”, the scammers will convince you to add more money to invest and also convince other people. Since they have proven that you are receiving profit from your investment then it’s easier to convince you to add more and even ask your relatives and friends to also join. And due to the “proof or profit” being presented, the victims will be covinced to put a large amount of money since the more they put the bigger the amount of their return. The same process repeats for each victim, the profit being given to them are coming from the same money they gave until the scammers disappear with whatever is left.
The money being scammed by ponzi scammers is in the order of tens of thousands and sometimes even millions while pyramid scam is usually less than ten thousand dollars and mostly in below a thousand dollars. So be very very cautious if someone is offering you any investment that have a large return for you money even if the person offering is a member of your family or close friends. Always remember that risk and reward/loss are directly proportional. The larger the potential profit, the higher the risk and the potential loss of your money.