In North Carolina, "Pyramid" and "Ponzi" schemes are types of investment fraud. Some people confuse pyramid and Ponzi schemes with legitimate multilevel marketing businesses (MLMs). MLMs have a real product to sell and don't require consumers to pay anything extra to join the MLM system.
North Carolina Pyramid Schemes
In a pyramid scheme the products or services are gimmicks or overpriced such as health and beauty aids, new inventions, or "miracle" cures.
Here's an example of how a pyramid scheme promoter might try and lure in other members. A promoter will make a claim that you can get rich quick, just like her, by recruiting people to become "distributors" in an exciting new company that sells a wonder weight loss drug. She explains that if you bring people into the business, and they recruit more people, you would earn a percentage of all of their sales. All you have to do is pay a membership fee to join.
Here, the emphasis is on recruiting others with no legitimate product to sell. If a program primarily focuses on recruiting others to join the program for a fee, it is likely a pyramid scheme. Be skeptical if you will receive more compensation for recruiting others than for product sales.
North Carolina Ponzi Schemes
In a Ponzi scheme, the scammer pays old investors with the money he or she gets from new investors. All one has to do is hook a few investors who are willing to get in early on a once-in-a-lifetime business venture. The details of the investment don't matter. What fools people is the promise of fantastic returns on investments.
Here is a brief overview of how North Carolina combats pyramid and Ponzi schemes to protect consumers.
See White Collar Crimes, Financial Crimes, Securities Fraud, Wire Fraud and Property Crimes for more information.
| Code Section | Â NC General Statutes 14-291.2 |
| Nicknames | Pyramid Nicknames: "Chain Letters" "Cash Gifting Schemes" |
| What is Prohibited | Pyramid Scheme:Â A pyramid scheme is any plan in which a participant (1) pays money (2) for the chance to receive money (3) upon the introduction of new participants into the program, whether or not a product or service is offered. Ponzi Scheme: A swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks. Generally prosecuted as a federal crime, but can be prosecuted as state-crime under fraud and other state statutes. |
| Type of Crime | Felony or Misdemeanor-varies on nature of the crime |
| Who Prosecutes this Crime? | North Carolina Attorney General, Local Prosecutors |
| Punishment | State Prison or County Jail, Probation, Fines, Restitution, Community Service, Injunction, Revocation of Business License, Freezing Business Assets. |
There are several federal protections that may be available to you. To learn more about federal consumer protection laws, contact the following agencies:
State laws are constantly changing -- please contact a local consumer protection or a criminal defense attorney who can help you better understand the current North Carolina laws.
