Profit, Power, and Policy | Business Ethics Insights
Aug 11, 2026 · 35 min · 10 segments
Why do smart, experienced people fall for Ponzi schemes and pyramid schemes — and how do you know if your MLM "business opportunity" is actually illegal? Dr. William Keep, a DOJ/SEC/FTC expert witness…
What are they, and how are they similar? And I told you, I visualize people making a pyramid, and then, of course, it's a pyramid scheme, so it crashes and everybody falls to the ground.
The distinguishing characteristic of a pyramid scheme is that there is a baked-in recruitment reward system.
Now, in the Madoff example of a Ponzi scheme, people would come to Madoff and just say, can you invest my money? I would really like you to invest my money.
Now, it is true that as he got larger and larger, he had what were called feeder funds.
Suppose you gave your money to a money manager, then the money manager sent the fund to MADOC.
It is true that there was some feeder funds, and those feeder funds made some money, at least initially, but it wasn't a baked-in reward system.
In terms of pyramid schemes, and they fall into two broad categories, though they sometimes overlap.
They are either purely an investment scheme, similar to a Ponza scheme, or they're a product-based pyramid scheme.
These are also sometimes called gifting clubs, and what they are is purely investment based on you and your friends.
What are they, and how are they similar? And I told you, I visualize people making a pyramid, and then, of course, it's a pyramid scheme, so it crashes and everybody falls to the ground.
The distinguishing characteristic of a pyramid scheme is that there is a baked-in recruitment reward system.
Now, in the Madoff example of a Ponzi scheme, people would come to Madoff and just say, can you invest my money? I would really like you to invest my money.
Now, it is true that as he got larger and larger, he had what were called feeder funds.
Suppose you gave your money to a money manager, then the money manager sent the fund to MADOC.
It is true that there was some feeder funds, and those feeder funds made some money, at least initially, but it wasn't a baked-in reward system.
In terms of pyramid schemes, and they fall into two broad categories, though they sometimes overlap.
They are either purely an investment scheme, similar to a Ponza scheme, or they're a product-based pyramid scheme.
These are also sometimes called gifting clubs, and what they are is purely investment based on you and your friends.
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