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Virginia Pyramid and Ponzi Scheme Laws

In Virginia, investment fraud can happen in a number of ways. Two of the most prevalent financial scams are "Pyramid" and "Ponzi " schemes. Here's a quick breakdown of how the two schemes differ.

Pyramid Promotional Schemes in Virginia

A pyramid scheme works like this. Someone recruits people to invest in a business or to sell a product. Those people recruit more people, and so on. The returns paid to the recruits aren't from profits --  they're funds from the following tier of recruits. But when there's not enough money to pay all of the recruits, the scheme collapses. People at the top of the pyramid usually make a lot of money. People at the bottom, usually lose it. And it's illegal.

Ponzi Schemes in Virginia

Named for Charles Ponzi (1882-1949), who had a popular scheme that paid early investors with money gained from later investors. A ponzi scheme is a fraudulent plan where newer contributions are used to pay early members to make it appear there are major earnings. This is normally not a pyramid scheme but it is nonetheless fraud.

Virginia Laws Against Investment Fraud

Virginia prohibits these types of activities under:

  • Virginia's Pyramid Promotional Schemes law;
  • Virginia Consumer Protection Act;
  • Virginia Fraud Laws.

Here is a brief overview of how the Commonwealth of Virginia combats pyramid and ponzi schemes to protect consumers.

See White Collar Crimes, Financial Crimes, Securities Fraud, Wire Fraud and Property Crimes for more information.

Code Section §18.2-239
Nicknames Pyramid nicknames: "Pyramid Chain Scheme" or "Pyramid Promotional Scheme"
What is Prohibited

Pyramid Scheme: A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, often without any product or service being delivered.

Ponzi Scheme: A swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks. Generally prosecuted as a federal crime, but can be prosecuted as state-crime under fraud and other state statutes.

Type of Crime Felony or Misdemeanor-varies on nature of the crime
Who Enforces the Law? Attorney General of Virginia, Consumer Protection Division and local prosecutors
Punishment State prison or county jail, probation, fines, restitution, community service, injunction, revocation of business license, freezing business assets

There are several federal protections that may be available to you. To learn more about federal consumer protection laws, contact the following agencies:

State laws are constantly changing--please contact a local consumer protection or a criminal defense attorney who can help you better understand current Virginia laws.

 

 

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