I came across a very informative source while browsing the Gale database. This link should lead to my annotations I made while reading this article via hypothes.is. This source gives an in depth look at the original Ponzi scheme formulated by Charles Ponzi. This scheme was first used in Boston in 1919 with a postal coupon system that made the founders very wealthy. The article talks about turning monetary means into a devalued currency, which then essentially forces people to partake in the buying of a product. I found this to have a resemblance to the tangible product flow that is involved in multi level markets. These similarities have sparked inquiry on the ethicality of this business scheme in the past. The Ponzi scheme and the pyramid scheme are two different schemes altogether, however they both work in similar ways. The Ponzi scheme somewhat inspired the pyramid scheme some years later. In both of these marketing formulas, there is a set “guarantee” of return to the investors within an allotted number of days, (in Ponzi’s case, investors were guaranteed a 100% return within 90 days). The reason his scheme was considered fraud is because the money he used to pay the investor’s returns came purely from the investments of new recruited investors, rather than postage sales that the company made afterwards. This shows how plans like these are bound to fall apart for the bottom recruitments eventually, because the scheme can only stretch so far until it breaks and can’t support the influx of new recruitments. These schemes often corrupt investors with more and more greed, as it soon becomes visible how they can end up with a large sum of cash by recruiting more and more people below them, as their superiors did to them. In a way this business scheme is much like a cult of success. There arises an intense sense of competition within the business that drives investors into abandoning all of their previous moral obligations to get ahead and make more money than those below them.
Another interesting piece of information that I found in this document was that many Ponzi schemes still live on today while staying under the radar of business regulations. The place that these schemes still mainly operate is on the internet. These markets can still prove to be sustainable today, but only if there exists a cooperation among investors to not liquidate their shares and they stay under the radar of the federal regulatory eye. This article also stated, “Economists increasingly describe any situation as “Ponzi” when it involves payout obligations that can be met only through borrowing against future income.” This provides a modern day understanding of these business platforms and how they can be harmful to investors at the bottom.
This article is very enhancing and relative to my ongoing research on multi level marketing and how they resemble schemes such as these. The detail provided about the Ponzi scheme added another dimension to my research in connecting the pyramid scheme and multi level marketing. A quote that connects these three pieces states, “ Pyramid schemes are one variant of the Ponzi scheme in which the earlier in the scheme a participant signs on, the greater that person’s share of excess returns.” This summarizes what I am trying to get across in my research paper. It is startling how reflective each of these schemes is to one another and it is hard to draw the line where legality and morality become an issue. I do not personally believe that slapping a different label on something and changing a few of the minor details can make something that is considered fraud, a commonly practiced business platform in modern day society.Tags: Business economy fraud ponzi