Dear Ken, You are correct that a Ponzi scheme is one in which the early investor(s) are paid returns on investment by taking in more investments from new investors. It is often possible to carry on a few rounds of activity in this way, after which the system must fail for want of adequate new investment funds to pay the advertised returns to all upstream (early) investors.
A pyramid scheme attempts to create a structure of individuals paying funds upstream, often to the very top of the pyramid. For example, one person would recruit nine individuals to pay him a dollar every day. They would each recruit nine individuals to pay both him and them a dollar every day. That would go on until the set of all gullible people was included. We may presume that number is somewhat less than seven times ten to the ninth power. If you enjoy this sort of math, or have fun with spreadsheets, it won't take you long to work out how many people have to be involved if you join the system in the tenth level and expect to get a million dollars out of it. Variations on the pyramid scheme involve stripping the top level after "seven downline" levels are added, or at some other point in the process. A fairly widely seen variation is the "chain letter" which asks you to send one or five or more dollars to the first name on the list, take that name off, and add yours at the bottom. Chain letter enthusiasts admonish that it is "bad luck" to "break the chain." An originator of a chain letter with ten addresses where he can receive mail and a list of a few hundred gullible people might make quite a bit with such a system. Again, you can work out from your position in the tree, even if you are one of the first recipients of the letter with ten above you, how many people would need to participate in order for your name to arrive at the top of the list, assuming each participant after the first few hundred sent the letter to only ten others, there were no repeats, and you expect to "get rich" from the scheme. Multi-level marketing (MLM) uses a pyramidal structure for the sales organization. It emphasizes recruiting as much as sales activity, since having a team of sellers working for you is better for you than being a really effective seller yourself. Most MLM uses a system that prevents downlines from getting very long, because a good deal of active management and supervision is important to the quality of results. MLM differs from the Ponzi or pyramid or chain letter schemes in that MLM offers products or services for sale. The others are purely schemes, con games, flim-flam. It may be that the quality of some products offered with MLM programs aren't great, or that some difficulties occur with newly recruited sales agents being required to buy an inventory of product, but the similarity of structure doesn't equate to a similarity of mischief. As has been pointed out, cosmetics, soap, plastic containers, lingerie, and many other products have been marketed with MLM methods. Amway, Mary Kay, and other companies have been successful with this form of marketing. I don't recommend it for the individual salesperson, but your mileage is going to vary. Sales organizations need not be built on these pyramid designs. It is possible to have a very flat structure, where salespeople only sell and don't do any recruiting of subordinates. It isn't clear that selling and recruiting are equivalent skills, or interchangeable. There are channels of distribution which don't involve outside salespeople. Paying commissions or referral fees does not necessarily make of e-gold or any other paying outfit a pyramid or MLM concept. Next we come to "high yield investment programs." For many years, _Forbes_ magazine has kept abreast of any number of these activities. Some penny stock operators are scammers; boiler rooms abound. The fool and his money are soon parted, and there are many who seek to undertake the separation for fun and profit. There are legitimate investment advisors and investment fund managers who have provided very high returns on investment. Venture capital funds return exceptionally high rates, while taking very high risks. Strategic investment techniques and certain other approaches have been shown to make double or triple digit returns on a fairly consistent basis, but anyone who expects to get rich without taking any risks should stay away from such approaches. This point brings us back to Ken Griffith's original claim, which is "the HYIP's have a real potential to hurt the acceptance of digital gold currencies. Everytime one of these scams gets busted that uses a dgc it gives the whole industry a black eye." Well, stuff and nonsense. Every time a penny stock operator or boiler room that uses Federal Reserve Note money gets busted, it doesn't give Federal Reserve Notes a black eye. Credit card fraud is rampant, but it does not give the use of credit cards a black eye. Sending paper money through the mail is advised against, but the existence of chain letters doesn't make cash or postage stamps any less accepted. Fraud is a bad thing. But let's keep things straight. Any tool can be used for good purposes or for ill. A hammer can be used to pound in nails, or to bash in the brains of innocent parties. Shall we blame the hammer for its possible bad use? No. Blaming the digital gold currency because its irrevocable transaction feature can be abused by the unworthy to take advantage of the unwary is silly. Laziness and ambition will always combine in some individuals to create a willingness to commit fraud and theft (among other crimes) in order to gain wealth quickly. These same characteristics keep the world full of people with more money than sense, who are easy prey because they want to believe that get-rich-quick schemes will work for them. I disagree with Khurram Khan's comparison of HYIPs and online casinos. Yes, it is understood that the house wins a percentage of all games; it is not the case that the house wins every bet transaction or nobody would play. A gamble which is understood by the parties involved is not fraud. That may well be the case with some or even with many HYIPs. However, any program where the odds of success are not understood or the facts needed to make an informed choice are deliberately withheld could be fraud. Initiating force and fraud is bad. It creates bad results. I happen to think it wrong. As for "shutting down" all HYIPs, that implies power for Ken Griffith that is not in evidence. I suppose he would shut them all down if he could, but I don't think he can. I rather doubt if e-gold, Ltd., or OmniPay or anyone else in this industry has that power. Some people are going to create clever schemes for getting rich, and others are going to be taken in by them, whether there are digital gold-backed currencies or not. Avoid being taken in. Warn those who seek advice from you. But, don't imagine that you can shut down fraud, even if you turn over power and authority to some group calling itself government. In the end, why do governments seek to imprison fraudsters? Because they hate the competition. A great many efforts have been made over the years to cure humans of their faults. Prohibition of alcohol was a famous effort of this sort. It resulted in the creation of a national police agency, the FBI, many national and international organized crime groups, and the loss of considerable profit by legitimate businesses. It also increased the consumption of alcohol. Government isn't going to provide a solution to drinking, drug consumption, prostitution, gambling, or fraud. Giving government agents coffee and donuts and access to records isn't going to obliterate crime, but it is going to make some government agents happier. The solution to most human problems is found at the individual level. The individual is best suited to protect his own interests, defend himself against crime, and keep his property secure. Attempts to delegate these powers to government has proven to be counter productive. You won't have any success in attempting to legislate morality if what you seek is a more moral conduct on the part of all individuals. If your purpose is to enlarge the scope of government, though, with attendant benefits in larger budget, more power, and greater authority, then legislating morality is the place to begin. You can free yourself, you can protect yourself, but you cannot free others, or provide effective protection for them if they don't want it. Many of those who are defrauded by con artists really want to believe that they are doing something to get rich quick, and will fervently resist any effort to educate them, protect them, or even retrieve their assets for them. Why do favors for the ungrateful? Regards, Jim http://www.awdal.com/dax/ --- You are currently subscribed to e-gold-list as: [email protected] To unsubscribe send a blank email to [EMAIL PROTECTED] http://www.e-gold.com/stats.html lets you observe the e-gold system's activity now!
