Ten Alleged Pyramid Schemes Under Investigation in Cyprus: A Modern Twist on the Ponzi Scheme

The Economic Crime Investigation Office of the Cyprus Police is investigating ten suspected pyramid schemes that have emerged in Cyprus since 2015. According to Cyprus law, a pyramid scheme is characterized as a business model that rewards individuals primarily through recruiting new members, rather than through the sale or consumption of a product.

Characteristics of Pyramid Schemes

Pyramid schemes lure individuals with offers of services or products for minimal initial investment. Over time, the required investment sums escalate. At the core of these schemes are supposed “managers” who use psychological manipulation and personal relationships to attract potential recruits. The primary incentive of joining such schemes is the prospect of additional income, which can be particularly attractive during economically challenging times.

Historical Background: The Security Exchange Company and Charles Ponzi

The deceptive business model, commonly known as a Ponzi scheme, dates back to at least 1919. It gained notoriety when Charles Ponzi, an Italian immigrant to the United States, introduced “The Security Exchange Company.” Ponzi promised potential investors astounding profits, leading thousands to invest their money. However, the payouts were funded by capital contributed by new recruits, eventually collapsing in a financial disaster.

Investigations in Cyprus: Travel, Cosmetics, and More

In recent years, companies promoting travel, cosmetics, personal hygiene, and weight loss products have raised concerns in Cyprus. The Consumer Protection Service previously warned the public to exercise caution when approached by such schemes and initiated investigations into the sale of coffee, juice, water, and even holidays. The Economic Crime Investigation Office of the Cyprus Police is now scrutinizing ten such businesses across Cyprus, primarily in the commerce and investment sectors.

Legal Consequences: Criminalization and Penalties

The Cyprus Securities and Exchange Commission (CySEC) also issued a statement earlier this month, stating that suspected pyramid schemes in violation of the relevant legislation would be handed over to the Attorney General for further investigation. Pyramid schemes were criminalized in Cyprus in 2015, with offenders risking a maximum prison term of five years, a fine of €200,000, or both penalties combined.

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