“Truth,” Lies, and Deception in Ponzi and Pyramid Schemes

“Truth,” Lies, and Deception in Ponzi and Pyramid Schemes

Isioma Maureen Chiluwa (Covenant University, Nigeria)
DOI: 10.4018/978-1-5225-8535-0.ch023
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The popularity of alternative online investment platforms has become worrisome in recent times. Adopting explorative methodology, this chapter examines the discursive practices of truth, lies and deception inherent in Ponzi and Pyramid schemes through their method of operation, recruitment strategies, products/services and reward system via Bitconnect, OneCoin, and Zarfund – three online-based Ponzi schemes. The study reveals that the greatest deception of Ponzi schemes lies in the high returns they promise to potential investors and the low work requirement. These claims make it difficult for potential investors to make rational decisions before investing. This study recommends that proper evaluation and due diligence – basic financial literacy – be conducted before investing in any AFIP. Alternatively, expert advice may be sort before any financial commitment.
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Social media platforms enable individuals and business organizations to utilize the opportunity of mediatized relationships on the Internet to do business and create wealth. Significantly, the emergence of virtual currency that allows individuals to carry out financial transactions online, without the use of credit cards, has given rise to new forms of legal and illegal financial practices. The popularity of Internet-mediated financial institutions and transactions has in turn yielded the growth of fraudulent financial investments, such as Ponzi and pyramid schemes. These schemes that parade as alternative financial institutions, persuade investors using different approaches. Ponzi schemes which although, existed before the emergence of the Internet, have been made popular through the emergence of virtual currencies.

An important feature of the rise in these alternative financial practices online, is the rise of new ways of making money online promoted through peer to peer platforms. As virtual currencies increase, the financial means of acquiring them has also increased, giving rise to the proliferation of Ponzi schemes in the guise of cryptocurrencies, investment schemes and currency exchange platforms. The impact of this new trend of financial fraud is evidenced by a report that there were over 1800 Bitcoin-based Ponzi schemes as at 2016 (Bartoletti, Ses & Serusi, 2018). Some of these schemes are built on half-truths and outright lies, intended to deceive victims and cajole them into making financial commitments that in some cases, result in losses. It is noteworthy that while these schemes are Internet-based, meaning that there is almost no direct contact between promoters and their prospective clients, the use of language whether verbal or non-verbal, plays important roles in the recruitment process of investors.

Although there is an emerging body of research on internet-based Ponzi schemes, these studies have explored the workings of Ponzi schemes related to Bitcoin and Ethereum, their ecosystem, as well as their risks (e.g Vilkins, Acuff & Hermanson, 2012; Vasek & Moore, 2015). The current study draws attention to the reproduction of ‘truth,’ lies and their juxtaposition as discourse practices that enable deception in Ponzi, Pyramid schemes and scam cryptocurrencies. This study which is qualitative, is an attempt to explore the discourse structures of these schemes as promoters of online mediated deception with a view to contribute to existing literature in this regard.

Key Terms in this Chapter

Pyramid Scheme: A type of business that recruits members by promising of payments or services to early investors when they recruit others.

Cryptocurrency: A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

Ponzi Scheme: A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors.

High Yield Investment Programs: A type of Ponzi scheme, an investment scam that promises unsustainably high return on investment by paying previous investors with the money invested by new investors. Usually generate returns between few hours to over a long period of time.

Smart Contract: A computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties.

Deception: A process of sending message intended to induce a false belief in the receiver.

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