Ponzi and Pyramid Schemes
Americans lost $12.5 billion to fraud in 2024, according to the FTC.
Quick Answer
Ponzi and pyramid schemes are investment frauds that cost victims billions, with the FBI reporting total investment fraud losses of $4.57 billion in 2023.
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How It Works
1
A promoter launches a scheme and recruits initial investors with promises of unusually high, guaranteed returns with little or no risk.
2
Early investors are paid with money from new investors, creating the illusion of a profitable enterprise. These early investors often feel successful and encourage friends and family to join.
3
In a Ponzi scheme, the promoter pays old investors with new money. In a pyramid scheme, members make money primarily by recruiting new participants, who must pay a fee to join.
4
The scheme collapses when the promoter cannot attract enough new investors to pay the existing ones or when a large number of investors try to cash out at once.
Red Flags
- Promises of high returns with little or no risk.
- Overly consistent returns regardless of market conditions.
- Emphasis on recruiting new participants to make money.
- Complex or secretive strategies that are difficult to understand.
- Pressure to act quickly or invest immediately.
- Difficulty receiving payments or cashing out your investment.
- Unregistered investments or unlicensed sellers.
What to Do If Targeted
- Stop all communication with the promoters immediately.
- Do not invest any more money, even if they promise a full refund after one more payment.
- Gather all documentation, including emails, contracts, and payment records.
- File a report with law enforcement and regulatory agencies.
- Contact your bank or financial institution to report the fraud and see if any transactions can be reversed.
- Inform family and friends who may also be involved in the scheme.
How to Report It
- FTC — File a fraud report with the Federal Trade Commission to help with investigations and consumer protection.
- FBI IC3 — Report internet-based investment fraud to the FBI's Internet Crime Complaint Center.
- SEC — Submit a tip or complaint about investment fraud to the U.S. Securities and Exchange Commission.
- FCC — File a complaint about phone scams, robocalls, or unwanted calls with the Federal Communications Commission.
- AARP Fraud Helpline — Call 877-908-3360 for free support from trained fraud specialists. Available to anyone, not just AARP members.
Key Statistics
- Investment fraud was the costliest crime tracked by the FBI in 2023, with victims reporting $4.57 billion in losses. — FBI IC3 2023 Internet Crime Report
- The number of Ponzi schemes discovered in 2023 reached a seven-year high, with 66 schemes uncovered involving nearly $2 billion in potential investor losses. — Ponzitracker 2023
- Losses from investment scams related to cryptocurrency increased by 53% from 2022 to 2023, reaching $3.94 billion. — FBI IC3 2023 Internet Crime Report
- Victims aged 30-49 were the most likely demographic to report losses from investment fraud in 2023. — FBI IC3 2023 Internet Crime Report
- In the historic Bernard Madoff Ponzi scheme, the Department of Justice has distributed over $4.22 billion to more than 40,800 victims, representing 91% of their fraud losses. — Department of Justice 2023
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Frequently Asked Questions
A Ponzi scheme is an investment fraud where a central operator pays returns to earlier investors using capital from new investors, rather than from legitimate investment profits. A pyramid scheme is a fraudulent model where members make money primarily by recruiting new participants into the program, who must pay a fee to join.
Investment fraud is the costliest scam category tracked by the FBI. In 2023, the FBI's Internet Crime Complaint Center (IC3) received complaints representing $4.57 billion in losses to investment scams, a 38% increase from 2022.
Yes, people of all ages are victims. According to the FBI's 2023 IC3 report, victims aged 30 to 49 were the most likely group to report losses from investment fraud.
Recovery is difficult and rare. While law enforcement agencies work to seize assets from perpetrators, the funds recovered are often only a small fraction of the total amount stolen and must be distributed among many victims.
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