I see them used incorrectly a lot on this board so I thought I would explain the difference. First they aren't the same thing so don't use them interchangeably.
A Pyramid Scheme is usually called network marketing when it is sold to you. It usually has a product attached to it to look legitimate. Some of them are very profitable and have been going on for a while. These include Mary Kay, Amway, Herbalife, etc. There is money being made on the sale of the product, but there is also money being made on the sale of the license to sell the product. The worst of these schemes are thinly veiled schemes to bilk people out of the licensing fee
Basically person X gets people to buy a license to sell product Y from him he get some percentage of the licensing fee. He also gets some percentage of any licensing fee his people sell as well. This usually works out very well for the first few people in town who sell licenses, but not so well for the people on down the line. The up flowing of money with few people at the top and many people at the bottom is the reason for the pyramid scheme name.
A Ponzi scheme is usually disguised as an investment firm. The schemer will pose as a financial advisor and take deposits. He will keep accounting records and statements just like a regular financial advisor. The accounts will show you are buying and selling stocks and bonds etc just like a normal account, but in reality all the money is in a large account which the schemer is using to fund their own lifestyle. This is what Bernie Madoff did. He even had a lot of money invested and was doing well enough to keep it going for quite a while. Many people over the 20 years or so of his scheme had deposited and withdrawn their funds and didn't lose anything. The scheme fell apart in 2008 when the market dropped by 1/2 and everyone came in at once to withdraw. Madoff only had $10 billion or so of the $50 billion he supposedly had deposited.
A Pyramid Scheme is usually called network marketing when it is sold to you. It usually has a product attached to it to look legitimate. Some of them are very profitable and have been going on for a while. These include Mary Kay, Amway, Herbalife, etc. There is money being made on the sale of the product, but there is also money being made on the sale of the license to sell the product. The worst of these schemes are thinly veiled schemes to bilk people out of the licensing fee
Basically person X gets people to buy a license to sell product Y from him he get some percentage of the licensing fee. He also gets some percentage of any licensing fee his people sell as well. This usually works out very well for the first few people in town who sell licenses, but not so well for the people on down the line. The up flowing of money with few people at the top and many people at the bottom is the reason for the pyramid scheme name.
A Ponzi scheme is usually disguised as an investment firm. The schemer will pose as a financial advisor and take deposits. He will keep accounting records and statements just like a regular financial advisor. The accounts will show you are buying and selling stocks and bonds etc just like a normal account, but in reality all the money is in a large account which the schemer is using to fund their own lifestyle. This is what Bernie Madoff did. He even had a lot of money invested and was doing well enough to keep it going for quite a while. Many people over the 20 years or so of his scheme had deposited and withdrawn their funds and didn't lose anything. The scheme fell apart in 2008 when the market dropped by 1/2 and everyone came in at once to withdraw. Madoff only had $10 billion or so of the $50 billion he supposedly had deposited.
