If a mark picks the correct card, the dealer begins to pick up the other cards. Using sleight of hand, the dealer then accidentally "drops" a card he tried to pick up over the box. He then reaches over the box and acts as if he can't reach the card. While still bent over the cardboard box, the dealer asks a player or shill to pick up the dropped card. The card is dropped face down, so the mark doesn't see that the card is wrong. While the player or shill picks up the card, the dealer picks up the two other cards and switches card positions while still hovering over them, so the mark doesn't see.
When the dealer gets the card back, he flips over their card, revealing it to be incorrect. Legality In Canada, under section 1 of the Criminal Code of Canada, it is illegal to do the following in relation to the three-card monte: Receive bets Induce any person to stake or hazard any money or other valuable property Carry on or play or offer to carry on or play in a public place Employ any person to carry on or play in a public place Allow the game to take place the owner of the premise.
Historic It was taking a victim with Three-card Monte, on July 7, , that caused the shooting death, two days later, of infamous con man Soapy Smith. References [1] Paul B.
Shill A shill or plant is a person who helps another person or organization to sell goods or services without disclosing that he or she has a close relationship with the seller. The person or group that hires the shill is using crowd psychology, to encourage other onlookers or audience members who are unaware of the set-up to purchase the said goods or services.
Shills are often employed by confidence artists. The term is also used to describe a person who is paid to help a political party or other advocacy organization to gain adherents; as with the situation of selling goods or services, the shill gives the impression of being unrelated to the group in question, and gives the impression that he or she finds merit in the ideological claims of the political party.
Shilling is illegal in many circumstances and in many jurisdictions[1] because of the frequently fraudulent and damaging character of the shill's actions. However, if a shill does not place uninformed parties at a risk of loss, but merely generates "buzz", the shill's actions may be legal. For example, a person planted in an audience to laugh and applaud when desired see claque , or to participate in on-stage activities as a "random member of the audience", is a type of legal shill.
Auctioneer and assistants, Cheviot, Ohio "Shill" can also be used pejoratively to describe a critic who appears either all-too-eager to heap glowing praise upon mediocre offerings, or who acts as an apologist for glaring flaws.
In this sense, they would be an implicit "shill" for the industry at large, possibly because their income is tied to its prosperity. The origin of the term shill is uncertain; it may be an abbreviation of the Yiddish shillaber. The word originally denoted a carnival worker who pretended to be a member of the audience in an attempt to elicit interest in an attraction.
Some sources trace the usage only back to Internet In online discussion media, satisfied consumers or "innocent" parties may express specific opinions in order to further the interests of an organization in which they have an interest, such as a commercial vendor or special interest group. Websites may also be set up for the same purpose. For example, an employee of a company that produces a specific product may praise the product anonymously in a discussion forum or group in order to generate interest in that product, service or group.
In addition, some shills use sock puppetry where they sign on as one user soliciting recommendations for a specific product or service. They then sign on as a different user pretending to be a satisfied customer of a specific company. In some jurisdictions and circumstances this type of activity may be illegal.
In addition, reputable organizations may prohibit their employees and other interested parties contractors, agents, etc. For example, the plastic surgery company, Lifestyle Lift, ordered their employees to post fake positive reviews on websites. Said Attorney General Andrew Cuomo: "This companys attempt to generate business by duping consumers was cynical, manipulative, and illegal. My office has [been] and will continue to be on the forefront in protecting consumers against emerging fraud and deception, including astroturfing, on the Internet.
Sock puppets Sometimes shills may be used to downplay legitimate complaints posted by users on the Internet. See Spin public relations and sock puppet internet. Gambling Both the illegal and legal gambling industries often use shills to make winning at games appear more likely than it actually is. For example, illegal Three-card Monte and Shell game peddlers are notorious employers of shills. These shills also often aid in cheating, disrupting the game if the "mark" is likely to win.
In a legal casino, however, a shill is sometimes a gambler who plays using the casino's money in order to keep games especially poker going when there are not enough players. This is different from a "proposition player" who is paid a salary by the casino for the same purpose, but bets with their own money.
Marketing In marketing, shills are often employed to assume the air of satisfied customers and give testimonials to the merits of a given product. This type of shilling is illegal in some jurisdictions but almost impossible to detect.
Auctions Shills, or "potted plants", are sometimes employed in auctions. Driving prices up with phony bids, they seek to provoke a bidding war among other participants. Often they are told by the seller precisely how high to bid, as the seller actually pays the price to himself, of course if the item does not sell, losing only the auction fees. Shilling has a substantially higher rate of occurrence in online auctions, where any user with multiple accounts and IP addresses can shill without aid of participants.
Many online auction sites employ sophisticated and usually secret methods to detect collusion. The online auction site eBay forbids shilling; its rules do not allow friends or employees of a person selling an item to bid on the item. Journalism The term is applied metaphorically to journalists or commentators who have vested interests in or associations with parties in a controversial issue.
Usually this takes the form of a show or network pretending to be offering news when in fact they are simply repeating talking points offered by a political party. Journalistic ethics require full disclosure of conflicts of interest, and of any interference by other parties with the reportage. In these roles the journalists will present positive stories about their respective interests at key moments in order to influence public opinion.
This is often achieved by claiming to have access to anonymous government or business sources. At other times, the links may actually appear overt to some, but not to the intended audience such as with Radio Free Europe, a broadcaster which targeted Eastern European audiences on behalf of the Central Intelligence Agency. An extension of these tactics is the practice of monitoring news outlets prior to or during publication.
Often when a negative story is discovered attempts are made first to stop it. However as this can, in some societies, draw attention to what could otherwise be a minor story, Shill's are used to put out alternative views, either to confuse the public about the legitimacy of the story or to outright convince them that it is a lie.
Research and experiments A shill in a psychology experiment, or the like, is called a "confederate". In Stanley Milgram's experiment in which the subjects witnessed people getting electric shocks, a confederate would pretend to be one of the experimental subjects who would receive the fake shocks, so that the real experimental subject would think that a draw of names from a hat was random. The confederate would always play the role of the learner, and the subject would be the teacher, and the subject would think that this was a random draw from a hat containing papers that say "learner" and "teacher".
In performance art, such as DECONference Decontamination Conference , the confederates were called "deconfederates", and when a large group of de conference attendees were asked to remove all clothing prior to entry to the deconference, the deconfederate, planted among the attendees, would comply immediately with the request, causing all of the others to follow the orders and disrobe as well.
Police or military interrogators sometimes use undercover agents called "plants" to assist with the interrogation of an individual or suspect. The plant can pose as a fellow inmate or internee, build a rapport and earn the confidence of the interviewee. The plant may subtly suggest that telling the interrogators what they want to know is the sensible or right thing to do. Even if no outright confessions are obtained, minor details and discrepancies that come out in supposedly innocent conversation can be used to chip away at the interviewee.
Some plants are in reality inmates or prisoners of war who have been promised better treatment and conditions in return for helping with the interrogation, as in the character played by William Hurt in the film Kiss of the Spider Woman. One notorious UK case is that of Colin Stagg, a man who was falsely accused of the murder of Rachel Nickell, in which a policewoman posed as a potential love interest to try to tempt Stagg to implicate himself.
The experimenter E orders the teacher S , the subject of the experiment, to give what the latter believes are painful electric shocks to a learner A , who is actually an actor and confederate. The subject believes that for each wrong answer, the learner was receiving actual electric shocks, though in reality there were no such punishments. Being separated from the subject, the confederate set up a tape recorder integrated with the electro-shock generator, which played pre-recorded sounds for each shock level.
Relation to Other Concepts Puppet Government Puppet, Vassal or Satellite states have been routinely used in exercises of foreign policy to give weight to the arguments of the country that controls them. These states are also used to give the impression of legitimacy to domestic policies that are ultimately harmful to the population they control, while benefiscial to the government that controls them.
Even outside the spectrum of sovereign powers many multiparty democratic systems give foreign powers the capacity to influence political discourse through shills and psuedo sock-puppets. Thanks to the reliance of many political parties on external sources of revenue for campaigns it can be easy for a government or business to either choose which party it funds or to outright create one. This way they can either choose to support existing minority voices that echo their views or form their own, using their funds and usually semi-covert influence to make them a.
Shill more prominent voice. Another concept in foreign policy is seen in sovereign alliances. In these instances, an allied country acts on behalf of anothers interests so that it appears that the original power does not want to get involved.
This is useful in situations where there is little public support in the original country for the actions. This type of collusion is typically practiced between countries that share common goals and are capable of returning favours. An example of this may be Cuba's role during the Cold War, in sending active combat troops to wars in Africa when it was unpalatable for the USSR to do so. In these operations a government or organisation attempts to impersonate another party while committing an act that will allow it to react.
Undercover Operations During covert operations or police investigations agents may routinely claim to be of political views or a part of an organisation in order to gain the confidence of the people they wish to surveil.
Sometimes this goes further with the agents participating in acts on behalf of the organisations they infiltrate or falsely represent as was the case during the Operations like Gladio and Chaos. Often the end goal is not just to gain information about the organisation but to discredit them in the eyes of the public.
However, these kinds of actions are more similar to False Flag Operations then typical Undercover Operations. In other examples, operatives may act in a manner they deem positive to assist an organisation they cannot have overt ties to.
References [1] "FTC v. Greeting Cards of America, Inc. Retrieved 25 November External links FTC v. Sleight of hand Sleight of hand, also known as prestidigitation "quick fingers" or legerdemain, is the set of techniques used by a magician or card sharp to manipulate objects such as cards and coins secretly.
It can be contrasted with the flourish, where the magician intentionally displays skills, such as the ability to cut cards one-handed, which is akin to juggling. Advanced sleight of hand requires months or years of practice before it can be performed proficiently in front of spectators. Sleight of hand is mostly employed in close-up magic, but it can also be used in stage magic.
There are hundreds of different sleights at the performer's disposal, but they can generally be classified into groups such as switches, changes, and others.
There are several stories about magicians using sleight of hand in real life, such as when American illusionist David Copperfield used sleight of hand to fool a mugger into thinking he had nothing in his pockets, even though he was carrying a cellphone, passport and wallet. Etymology Sleight, meaning dexterity or deceptiveness, comes from the Old Norse slg,[3] meaning cleverness, cunning, slyness.
Slight descends from the Old Norse slettr, meaning plain, flat, even, smooth, level. Sleight of hand in close-up magic Sleight of hand is often used in close-up magic, performed with the audience close to the magician, usually within three or four meters, possibly in physical contact. It often makes use of everyday items as props, such as cards and coins.
The guiding principle of sleight-of-hand, articulated by legendary close-up magician Dai Vernon, is "be natural. It is commonly believed that sleight of hand works because the hand is quicker than the eye but this is usually not the case. In addition to manual dexterity, sleight of hand depends on the use of psychology, timing, misdirection, and natural choreography in accomplishing a magical effect.
Misdirection is perhaps the most important component of the art of sleight of hand. The magician choreographs his actions so that all spectators are likely to look where he or she wants them to. More importantly, they do not look where the performer does not wish them to look. Two types of misdirection are timing and movement.
Timing is simple: by allowing a small amount of time to pass after an action, events are skewed in the viewer's mind. Movement is a little more complicated. A phrase often used is "A larger action covers a smaller action. Another common misconception is that close-up magic must utilise either sleight of hand or some kind of rigged apparatus.
However, as Henry Hay's Cyclopedia of Magic[6] [7] says, "Many small tricks, especially card tricks, require neither apparatus nor sleight of hand; much apparatus of the "gimmick" type does not require sleight of hand. Illusions, because they deal with objects too big to hold in the hand, are one class of magic that seldom require sleight of hand--though even here sleight of hand "forcing" may be called into play.
There are successful illusionists and apparatus conjurers who can do no sleight of hand at all, but their difficulties and restrictions deserve our sympathy rather than our scorn. Principles of sleight of hand The magicians Penn and Teller have been known, as part of their act, to explain sleight of hand while demonstrating it with a performance by Teller, appearing to merely dispose of an old cigarette and light a new cigarette.
Teller is, in fact, simply hiding and replacing the same cigarette without ever putting it out. While Teller performs, Penn describes what he is doing, and explains the seven principles of sleight of hand. Palm - To hold an object in an apparently empty hand. Ditch - To secretly dispose of an unneeded object. Steal - To secretly obtain a needed object. Load - To secretly move an object to where it is needed. Simulation - To give the impression that something has happened that has not.
Misdirection - To lead attention away from a secret move. Switch - To secretly exchange one object for another. In "The Trick Brain", Fitzkie identifies 17 fundamental effects in magic. However it is debatable that the changes in position, material, form, color, size, temperature and weight could all be classified as a change.
Production 2. Vanish 3. Change in position 4. Change in material 5. Change in form 6. Change in color 7. Change in size 8. Change in temperature 9. Change in weight Magnetism Levitation Penetration Restoration Remote control Sympathy Divination Comprising all feats of mental magic Deceit Sleight-of-hand techniques can also be used to cheat in gambling games, in street con games such as the three-shell game, or three-card monte to steal, or, in some cases, to claim supernatural powers, as in the performances of some 19th- and early 20th-century spirit mediums.
For this reason, the term "sleight of hand" frequently carries negative associations of dishonesty and deceit, and is also used metaphorically outside the above contexts. The techniques used by gamblers, however, are often very different from those employed by magicians; similarly, the techniques used by some psychics or spirit mediums are often different from those found in "straight" close-up magic and mentalism.
The differences, however, are due to the different working conditions and the different degrees of proximity between spectators and performer; the same basic techniques and approaches are common in all the areas of deception mentioned.
Performers often encourage their audience to believe they have used sleight of hand when they are actually using another principle or gimmick as the means of misdirecting the audience.
This directs them away from thinking of a method as simple as the thumb tip. Love To Know Classic Encyclopedia. Retrieved Hay, Henry. Cyclopedia of Magic 1st Ed. Cyclopedia of Magic reprint ed. Dover Publications. You Tube. Misdirection Misdirection may refer to: a technique used when performing magic tricks see Misdirection magic a technique used in strategy games and warfare see Feint an incorrect charge given by a judge to a jury see Misdirection Legal a technique employed by criminals see Pickpocketing a technique used by the intelligence services see Limited hangout a technique used in American Football see Counter Trey a technique used in fast talk see Psychobabble and Technobabble.
Fraud According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage". The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.
A hoax also involves deception, but without the intention of gain, or of damaging or depriving the victim; the intention is often humorous. Frauds committed by owners and executives were more than nine times as costly as employee fraud. The industries most commonly affected are banking, manufacturing, and government.
Types of fraudulent acts Fraud can be committed through many media, including mail, wire, phone, and the Internet computer crime and Internet fraud. The international dimensions of the web and ease with which users can hide their location, the difficulty of checking identity and legitimacy online, and the simplicity with which crackers can divert browsers to dishonest sites and steal credit card details have all contributed to the very rapid growth of Internet fraud. Types of criminal fraud include: bait and switch bankruptcy fraud benefit fraud, committing fraud to get government benefits counterfeiting of currency, documents or valuable goods charlatanism confidence tricks such as the fraud and Spanish Prisoner creation of false companies or "long firms" embezzlement, taking money which one has been entrusted with on behalf of another party false advertising false billing false insurance claims forgery of documents or signatures, Franchise fraud where the real profit is earned, not by the sale of the product, but by the sale of new franchise licenses.
Fraud securities frauds such as pump and dump tax fraud, not reporting revenue or illegally avoiding taxes. In some countries, tax fraud is also prosecuted under false billing or tax forgery[3]. Elements of fraud Common law fraud has nine elements:[4] [5] 1. Most jurisdictions in the United States require that each element be pled with particularity and be proved with clear, cogent, and convincing evidence very probable evidence to establish a claim of fraud.
The measure of damages in fraud cases is to be computed by the "benefit of bargain" rule, which is the difference between the value of the property had it been as represented, and its actual value. Special damages may be allowed if shown proximately caused by defendant's fraud and the damage amounts are proved with specificity. The NFA works with a wide range of partners with the aim of making fraud more difficult to commit in the UK.
It concluded that fraud is a significantly under-reported crime, and while various agencies and organisations were attempting to tackle the issue, greater co-operation was needed to achieve a real impact in the public sector. The scale of the problem pointed to the need for a small but high-powered body to bring together the numerous counter-fraud initiatives that existed, which is when the NFA was formed.
The NFA works to tackle frauds across the spectrum, but also works on fraud types and fraud issues that are a notable problem. These include identity fraud, mortgage fraud, accommodation addresses, mass marketing fraud and fraud affecting small and medium sized businesses. The current estimate puts the cost of fraud to the UK at 38 billion a year, which equates to a year for every adult in England and Wales. Working with the charity, Victim Support, the NFA has also done some significant work with victims, to ensure they receive the support they deserve if they have been a victim of the crime.
Action Fraud is the place to go to get information and advice about fraud, as well as to report fraud. UK citizens can report fraud online or by calling Notable fraudsters Frank Abagnale Jr. Cassie Chadwick, who pretended to be Andrew Carnegie's illegitimate daughter to get loans.
Salim Damji is a convicted fraud artist who defrauded millions of dollars in an affinity fraud. The money came mostly from relatives and members of the closely-knit Ismaili community. Charles Dawson, an amateur British archeologist who claimed to have found the Piltdown man. Martin Frankel is a former U. He faked suicide.
Ashok Jadejahas been accused of cheating people from across India of scores of rupees on the pretext of having divine blessings. Konrad Kujau, German fraudster and forger responsible for the "Hitler Diaries".
Kenneth Lay, the American businessman who built energy company Enron. He was one of the highest paid CEOs in America until he was ousted as Chairman and was convicted of fraud and conspiracy, although as a result of his death, his conviction was vacated. James Paul Lewis, Jr. Gregor MacGregor, Scottish conman who tried to attract investment and settlers for the non-existent country of Poyais. Colleen McCabe, British headmistress who stole million from her school. Gaston Means, a professional conman during U.
President Warren G. Harding's administration. Matt the Knife, American born con artist, card cheat and pickpocket who, from the ages of approximately 14 through 21, bilked dozens of casinos, corporations and at least one Mafia crime family out of untold sums. Bam Morrison, who conned the town of Wetumka, Oklahoma by promoting a circus that never came. Frederick Emerson Peters, US impersonator who wrote bad checks.
Charles Ponzi and the Ponzi scheme. Christopher Rocancourt, a Rockefeller impersonator who defrauded Hollywood celebrities. Code named Project Phantom for the lengthy police investigation [13], the organizers lined up a steady supply of vehicles that were to be sold at the auctions.
The cars never materialized and were never purchased. But the operators of the fraud claimed that they had been sold, and because of the natives' tax-exempt status were able to claim the GST exemption.
Authorities could only guess at the full loss sustained by the Canada Revenue Agency. Rothstein, a disbarred lawyer from Ft. Michael Sabo, best known as a check, stocks and bonds forger.
He became notorious in the s throughout the s as a "Great Impostor" over aliases, and earned millions from such. Kevin Trudeau, US writer and billiards promoter, convicted of fraud and larceny in , known for a series of late-night infomercials and his series of books about "Natural Cures "They" Don't Want You to Know About".
Related Apart from fraud, there are several related categories of intentional deceptions that may or may not include the elements of personal gain or damage to another individual: obstruction of justice 18 U.
Notes [1] fraud. Random House, Inc. Association of Certified Fraud Examiners. Kelly, No. Roettger, S. Associated Press. Retrieved October 8, Reuters Thomson Reuters. Retrieved December 10, ISBN ASP Press. Criminal Fraud, Vol, 48, No. Ponzi scheme A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.
The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.
The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities.
As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of Bernard Madoff's police mugshot of Charles Ponzi. The scheme is named after Charles Ponzi[1] who became notorious for using the technique in early Ponzi did not invent the scheme for example Charles Dickens' novel Little Dorrit described such a scheme decades before Ponzi was born , but his operation took in so much money that it was the first to become known throughout the United States.
Ponzi's original scheme was based on the arbitrage of international reply coupons for postage stamps, however he soon diverted investors' money to support payments to earlier investors and himself. Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be rational economically if there is a reasonable expectation that government or other person or organisation will bail out those participating in the scheme.
Hypothetical example Suppose an advertisement is placed that promises extraordinary returns on an investment for example, 20 percent on a day contract.
The objective is usually to deceive laymen who have no in-depth knowledge of finance or financial jargon. Verbal constructions that sound impressive but are essentially meaningless will be used to dazzle investors: terms such as "hedge futures trading," "high-yield investment programs," "offshore investment" might be used.
The promoter will then proceed to sell stakes to investorswho are essentially victims of a confidence trickby taking advantage of a lack of investor knowledge or competence. Claims of a "proprietary" investment strategy, which must be kept secret to ensure a competitive edge, may also be used to hide the nature of the scheme.
Without the benefit of precedent or objective prior information about the investment, only a few investors are tempted, usually for small sums. Thirty days later, the investor receives the original capital plus the 20 percent return. At this point, the investor will have more incentive to put in additional money and, as word begins to spread, other investors grab the "opportunity" to participate, leading to a cascade effect deriving from the promise of.
Ponzi scheme extraordinary returns. However, the "return" to the initial investors is being paid out of the investments of new entrants, and not out of profits. One reason that the scheme initially works so well is that early investors, those who actually got paid the large returns, commonly reinvest their money in the scheme it does, after all, pay out much better than any alternative investment.
Thus, those running the scheme do not actually have to pay out very much net ; they simply have to send statements to investors showing them how much they earned by keeping the money, maintaining the deception that the scheme is a fund with high returns.
Promoters also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time, in exchange for higher returns. The promoter sees new cash flows as investors are told they could not transfer money from the first plan to the second.
If a few investors do wish to withdraw their money in accordance with the terms allowed, the requests are usually promptly processed, which gives the illusion to all other investors that the fund is solvent. Ultimate unraveling of a Ponzi scheme The catch is that at some point one of these things will happen: 1. The promoter will vanish, taking all the remaining investment money minus the payouts to investors with him or her. Since the scheme requires a continual stream of investments to fund higher returns, once investment slows down, the scheme will begin to collapse under its own weight as the promoter starts having problems paying the promised returns the higher the returns, the greater the risk of the Ponzi scheme collapsing.
Such liquidity crises often trigger panics, as more people start asking for their money, similar to a bank run. External market forces, such as a sharp decline in the economy e. Madoff and the market downturn of , cause many investors to withdraw part or all of their funds; not necessarily due to loss of confidence in the investment, but simply due to underlying market fundamentals.
Similar schemes A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes: In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly.
In a pyramid scheme, those who recruit additional participants benefit directly. In fact, failure to recruit typically means no investment return. A Ponzi scheme claims to rely on some esoteric investment approach insider connections, etc. A pyramid scheme is bound to collapse much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to "reinvest" their money, with a relatively small number of new participants.
A bubble: A bubble is similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant until inevitable collapse , but it is not the same as a Ponzi scheme. A bubble involves ever-rising prices in an open market for example stock, housing, or tulip bulbs where prices rise because buyers bid more because prices are rising.
Bubbles are often said to be based on the "greater fool" theory. As with the Ponzi scheme, the price exceeds the intrinsic value of the item, but unlike the Ponzi scheme, there is no person. Ponzi scheme misrepresenting the intrinsic value. With the greater fool theory in mind, some may invest even though they believe the securities are overpriced due to a bubble. It does not follow that this is a Ponzi scheme, because from the basic facts set out there is no indication that the lenders were promised unrealistically high rates of return via claims of unusual financial investments.
Nor from these basic facts is there any indication that the borrower banker is progressively increasing the amount of borrowing "investing" to cover payments to initial investors. US Social Security Administration. Journal of Financial Intermediation Further reading Dunn, Donald New York: Broadway. Zuckoff, Mitchell Random House. External links What is a Ponzi scheme? Pyramid scheme A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public.
Pyramid schemes are a form of fraud. These types of schemes have existed for at least a century, some with variations to hide their true nature, and many people believe that multilevel marketing is also a pyramid scheme. Concept and basic models A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit.
The essential idea is that a "con artist" Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the "business" expands. Such "businesses" seldom involve sales of real products or services to which a monetary value might be easily attached.
However, sometimes the "payment" itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. The flaw is that there is no end benefit. The money simply travels up the chain. Only the originator sometimes called the "pharaoh" and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes.
Individuals at the bottom of the pyramid those who subscribed to the plan, but were not able to recruit any followers themselves end up with a deficit. The "Eight-Ball" model Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases.
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