Financial scams have come a long way: one of the first documented financial schemes was implemented in 1919. The essence and goals of investment pyramids have not changed since then, but the scales have grown significantly. In most cases, they are disguised as investment, charitable funds, businesses with dummy goods, or simply promise to make money "out of thin air." Typically, such companies are champions of rapid development but do not last long (1-3 years).

In 1919, in the USA, Charles Ponzi opened a company with a simple offer: invest $100 and get $150 in 3 months. In just a year, the organizer became very wealthy, the number of depositors grew, and affluent people from all over Europe invested, from politicians and artists to military personnel and police officers.

However, in 1920, due to a lawsuit by one of the depositors, the organization's bank accounts were frozen. All this was accompanied by rumors, and depositors rushed to the company, demanding their money and due interest. The pyramid collapsed.

Modern financial pyramids are modernized and use proven advertising tools, relying on modern methods of psychological influence to attract clients. The main characteristic of pyramids lies in the source of income - they promise high returns on investments, paying participants money from the investments of new clients. According to experts' estimates, the global damage from the activities of current pyramids amounts to at least $50 million per year.

One of the longest-running pyramids was Bernard Madoff's fraudulent scheme, which caused damage of over $64.8 billion and harmed about 3 million people. Unlike other creators of financial pyramids, he did not promise extremely high returns. For the investors of the Madoff Securities fund, established in 1983, the return was a quite realistic 12-13% annually. Madoff relied on the absence of management fees and implemented the proven Ponzi scheme: he took money from new investors and used it to pay bonuses to previous ones. The remaining funds were invested in treasury bonds with a modest profit of 2% per year.

Madoff's fund was extremely popular among American brokers, investors, and celebrities (one of the investors was director Steven Spielberg).

In 2008, several major investment companies wanted to withdraw their funds with accumulated interest amounting to $7 billion, and the pyramid collapsed in an instant. The organizer was sentenced harshly - to 150 years of imprisonment.

The principles of functioning of a financial pyramid have similarities with the banking system. In particular, money is accepted based on the principles of remuneration, urgency, and refundability. However, to prevent banks from turning into pyramid schemes, the state tightly regulates their activities, establishes regulatory bodies, introduces licensing of activities, etc.

Experts have long been calling for the introduction of criminal liability for the creation of such organizations. Quite often, scammers present their financial pyramids under the guise of network marketing. Their goal is the swift extraction of money from the maximum number of people through promises of fabulous incomes. Unfortunately, it is quite difficult to identify a fraudster at first glance. Therefore, it is necessary to carefully study the history of the company with which cooperation is planned and reviews about it.

Investment pyramids have a negative impact on the financial market and lead to the loss of money for a significant part of the population. As a result, citizens' trust in financial instruments is undermined.

and tarnishes the reputation of legitimate network marketing that has been around for decades.

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The legislation of many countries categorically prohibits attempts and the creation of financial pyramids under the threat of criminal liability.

RUSSIAN FEDERATION

Until 2016, it was not easy to hold accountable citizens who involved friends and acquaintances in financial pyramids without concealing the true nature of such "investments" in Russia. However, in 2016, an article came into force, according to which the promotion or advertising of financial pyramids is punishable, even if the true nature of the enterprise is not concealed.

Public dissemination of information, solicitation to participate in financial pyramids, entails administrative liability in the form of a fine (from 5 to 50 thousand rubles for individuals; from 20 to 100 thousand rubles for officials; from 500 thousand to 1 million rubles for legal entities). Organizers, for attracting funds exceeding 1.5 million rubles, face a fine of up to 1 million rubles or compulsory labor for up to four years, or imprisonment for the same term. For an especially large amount (over six million rubles) of funds attracted, pyramid organizers are subject to fines of up to 1.5 million rubles, compulsory labor for up to five years, or imprisonment for up to six years.

In Russia, financial pyramids are associated with the name of Sergey Mavrodi, who in the late 90s founded the MMM cooperative, which was joined by 10 to 15 million people. Later, he organized the investment pyramids MMM-2011 and MMM-2012, and until the end of his days, he engaged in the same activities in Asia and Africa.

CANADA

In Canada, the Competition Act has been adopted to combat pyramid schemes. In case of non-compliance with the requirements of this law, participants in such a structure will be charged with fraud, fined up to 200,000 Canadian dollars, or imprisoned for up to one year, and in the presence of signs of a financial pyramid, the prison term may be increased to five years.

GERMANY

Germany provides for life imprisonment for organizers of investment pyramids. The law prohibits "recruiting" participants into structures where income comes from the contributions of other participants and provides for punishment in the form of imprisonment for up to two years or a fine. In addition, punishment is also provided for attempting to create such a structure.

CHINA AND UAE

In the United Arab Emirates and China, the death penalty may be imposed for creating a financial pyramid.

A striking example is the Ezubao pyramid, which existed from 2014 to February 2016. During this time, no fewer than 900 thousand people suffered from the actions of its organizers. The online service created by scammers, Ezubao, offered users to invest in internet projects, promising high returns.The defendants were found guilty and sentenced to prison terms and fines. The main defendant in the case was Ding Ning, the chairman of the board of directors of the parent company of Ezubao. The convicted person was ordered to pay a fine of 100 million yuan (14.4 million dollars) and had property worth 500 thousand yuan (72 thousand dollars) confiscated. The court also sentenced Ding Ning to life imprisonment and deprivation of political rights.

KAZAKHSTAN

According to the Criminal Code of Kazakhstan, the creation of an investment pyramid is punishable by a fine of up to 3,000 monthly calculation indicators (for 2018: 1 month calculation indicator = 2,405 tenge, about 7 US dollars) or by restriction of freedom for up to three years, or by imprisonment for the same term, with confiscation of property. Attracting money or other property on a particularly large scale is punishable by imprisonment for a term of five to ten years.

Posting information and distributing advertising of pyramid schemes entail a fine for individuals in the amount of 150 monthly calculation indicators, for officials - 170, for small business entities or non-profit organizations - 200, for medium-sized business entities - 300, for large business entities - 600 monthly calculation indicators, with suspension of media outlet activity for up to 3 months in accordance with the Code of Administrative Offenses.

In countries where the criminal code does not have a specific article providing for punishment for creating a financial pyramid, such an act may be classified as conducting illegal entrepreneurial activity, fraud.

BELARUS

In Belarus, the prohibition of financial pyramids is provided for in the Criminal Code and is considered illegal entrepreneurial activity, punishable by a fine, or deprivation of the right to hold certain positions or engage in certain activities, or arrest, or restriction of freedom for up to two years, or imprisonment for up to three years with or without a fine. The advertising of pyramids is regulated by the Law on Advertising.

UKRAINE

In Ukraine, unlike the countries listed above, there is no direct prohibition on this type of activity, although the draft law "On the Prohibition of Financial Pyramids in Ukraine" was submitted to the Verkhovna Rada of Ukraine in early April 2013. Those involved in creating a pyramid scheme may face criminal charges for fraud.

New pyramids constantly emerge in the financial market. The imagination of the authors of fraudulent schemes knows no bounds, and the desire of the population to get rich quickly without making any effort does not diminish over the years. Lately, fraudulent schemes have been built around the hype surrounding cryptocurrency.

In difficult economic, social, and political situations, people seek alternative sources of income and fall into the hands of scammers and fraudsters. Pyramids can also be a source of excitement for some investors. They are well aware of all possible risks but want to experience the adrenaline rush. The goal becomes not only effortless earnings but also the desire to guess the best moment before the project collapses to withdraw all funds. These people want to outsmart others, profit at the expense of those who were unaware of the scheme, failed to guess the right time, or simply did not manage to leave the ranks of investors.

Financial pyramids are often disguised as network marketing. Scammers promote projects under the guise of MLM structures, taking advantage of the trust of the target audience, which poorly understands the difference between legitimate business and fraudulent schemes.

Article about factors and nuances that distinguish pyramids from MLM

Consciously engaging with pyramids, it is important to consider the level of risk and understand that earnings in such schemes are a matter of chance. Income in such companies does not depend on the time and effort invested as in real network marketing businesses.

Sincerely, FlawlessMLM

Punishment for creating financial pyramids