Pyramids, Ponzis and fraud prevention: lessons from a case study

Stacie Bosley and Maggie Knorr

Journal of Financial Crime, 2018, vol. 25, issue 1, 81-94

Abstract: Purpose - This paper aims to empirically identify factors that increase consumer vulnerability to pyramid scheme fraud and compares/contrasts dynamics and implications of pyramid and Ponzi fraud. Design/methodology/approach - Statistical techniques, including multiple regression, are used to analyze participant data (with over half a million individuals) from a now-defunct US-based pyramid scheme, Fortune Hi-Tech Marketing. Findings - Findings suggest that this pyramid scheme flourished in counties with identifiable affinity groups: religious communities, Hispanic populations and certain age cohorts (e.g. recently retired). Recruitment success varied significantly between geographic regions, with the highest levels of recruitment in the South. While prior research finds a possible positive relationship between education and Ponzi participation, this is not the case in the pyramid scheme studied. Furthermore, while Ponzi schemes might be pro-cyclical, collapsing during contractions when participants seek to extract their money, this pyramid scheme exhibited counter-cyclical behavior. Practical implications - State and federal regulators, as well as consumer protection advocates, should learn from analysis of past pyramid scheme cases. Such analysis informs allocation of scarce resources and supports the case for targeted, active education. Clarifying differences between Ponzi and pyramid fraud helps to support clear and effective intervention. Originality/value - This is the first research to analyze national participant-level data from a pyramid scheme to inform future action. While it confirms some past findings, such as the connection to affinity fraud, it adds to collective knowledge on pyramid schemes and the differences between pyramid and Ponzi fraud.

Keywords: Pyramid scheme; Ponzi scheme; Affinity fraud (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jfcpps:jfc-10-2016-0062

DOI: 10.1108/JFC-10-2016-0062

Access Statistics for this article

Journal of Financial Crime is currently edited by Dr Li Hong Xing and Prof Barry Rider

More articles in Journal of Financial Crime from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().