Pyramid Schemes and Ponzi Fraud in Spain: How the Criminal Code Punishes Them

Pyramid schemes and Ponzi frauds resurface with every economic cycle in new guises: investment clubs, trading platforms, crypto-assets, international trade ventures or supposed funds offering extraordinary returns. The front and the product change, but the mechanism is always the same: a promise of profits that comes not from any real activity, but from the money put in by new investors. In Spain, this pattern is prosecuted as fraud under Articles 248 to 250 of the Criminal Code. This article explains how it is classified, what sentences it carries and the keys to the defence.

What a pyramid scheme or Ponzi fraud is

The Ponzi scheme follows a centralised model: a promoter offers investors a fixed or very high return and, instead of generating it through genuine economic activity, pays earlier investors with the contributions of new ones. As long as funds keep coming in, the system appears solvent and distributes profits on time, which reinforces trust and attracts more participants. When the inflow stops, the structure collapses and most people lose their investment.

The pyramid structure is a variant in which recruiting new members is the real source of income: each participant recovers what they invested — and makes a profit — by bringing in others, who in turn must recruit so as not to lose out. It is often dressed up as multi-level marketing or an affiliate programme, but the criminal feature appears when the product or service is non-existent, marginal or a mere pretext, and what sustains the system is recruitment.

Both models share the same criminally relevant core: an appearance of a thriving business that conceals the fact that the returns are not generated but transferred from the money of those who arrive later.

The offence of fraud: Article 248 CP

Article 248 CP defines fraud through five elements that Supreme Court case law consistently requires in a connected chain:

• Sufficient deception: a manoeuvre capable of inducing error, assessed in light of the circumstances of the case and of the victim.
• Error in the victim: a false picture of reality produced by that deception.
• Act of patrimonial disposition: handing over the money or making the investment as a result of the error.
• Patrimonial harm: the economic loss to the investor or a third party.
• Intent to profit and prior intent: the aim of obtaining a benefit and the fraudulent intention present from the start.

In a pyramid scheme, the sufficient deception is identified with the promise of sustainable returns and with concealing the fact that those returns can only be maintained while new funds keep arriving. Prior intent is decisive: it is not enough that the business failed; the deception had to exist already when the investment was raised.

Sentences: from the basic offence to aggravated fraud (Arts. 249 and 250 CP)

Article 249 CP sets the sentence for the basic offence at six months to three years in prison, having regard to the amount defrauded and the other circumstances. By their very nature, however, pyramid schemes rarely stay within the basic offence, because the aggravating circumstances of Article 250 CP are usually present, raising the sentence to one to six years in prison and a fine of six to twelve months. Those that most often appear in these cases are:

• That the loss exceeds 50,000 euros or affects a large number of people (Art. 250.1.5 CP).
• That it is committed by abusing the personal relationship between victim and fraudster, or by taking advantage of the perpetrator's business or professional credibility (Art. 250.1.6 CP) — very typical of schemes that spread among friends and acquaintances.
• That the fraud is of special gravity given the scale of the harm and the situation in which it leaves the victim (Art. 250.1.4 CP).

When the loss reaches a very high level, Article 250.2 CP provides for a hyper-aggravated form carrying four to eight years in prison and a fine of twelve to twenty-four months, which applies, among other situations, when the value of the loss exceeds 250,000 euros. In schemes with hundreds of victims this threshold is easily crossed.

Liability of the legal person: Article 251 bis CP

These frauds are usually run through one or more companies: the investment platform, the entity that signs the contracts, the firm that appears to manage the funds. Article 251 bis CP allows criminal liability to be imposed on the legal person where, under Article 31 bis CP, the company was the channel for the offence. The consequences range from fines calculated on the amount defrauded to penalties such as the suspension of activities or the dissolution of the entity.

This calls for a careful analysis of the corporate chart: identifying which company carried out each act, what internal controls existed and what the real role of directors, attorneys-in-fact and employees was. The defence of the legal person and that of the individuals do not always coincide, and must be coordinated from the outset.

Concurrence with money laundering and other offences

Pyramid fraud rarely appears on its own. To move the money raised and give it the appearance of legitimacy, money laundering under Article 301 CP is often present, through transfers between accounts, shell companies, crypto-assets or front men. Document forgery offences may also arise — over contracts, return certificates or fabricated accounts — and, depending on the product offered, conduct relating to the securities market where investment is raised without the supervisor's authorisation.

The presence of these concurring offences widens the scope of the case considerably and demands an integrated strategy, because classifying the facts as one offence or another — or as several in concurrence — has a direct impact on the final sentence.

The line with civil breach

Not every failed investment is fraud. The Supreme Court draws a clear distinction between fraud and a mere breach of contract or lawful business risk: if there was genuine activity, an unforeseen loss or an inability to return the money invested without any prior deception, the dispute belongs to civil or commercial law. Again, the key is prior intent: the deception had to exist and operate from the moment the investment was raised, not appear afterwards as the consequence of a business that went wrong.

This distinction is one of the most important battlegrounds. A solid defence examines the contractual documentation, the financial flows and the chronology in order to show, where that was the case, that there was a genuine project rather than a mere front intended to defraud. Reviewing the accounts, the investment contracts and the moment when funds stopped being repaid is often decisive in placing the case on the civil or the criminal side. The information actually conveyed to each investor matters too, because the duty of transparency and the real content of the warnings given determine whether the victim's picture of the deal resulted from a sufficient deception or not.

Keys to the criminal defence

The defence against a charge of pyramid scheme or Ponzi fraud is built on several lines that are worth developing from the investigation stage:

• Disputing the sufficient deception and prior intent: if the business was genuine at the outset, there is no fraud, however much it ended in losses.
• Defining the accused's role: the promoter who designed the scheme is not in the same position as an intermediate recruiter or an investor who, besides losing money, encouraged others without knowing of the fraud.
• Challenging the amount and the causal link: reviewing the sum actually attributable to each person and the connection between the conduct and each victim's loss.
• Analysing the economic expert evidence: accounting and fund-tracing reports are often the heart of the case and can be met with counter-expert evidence.
• Assessing compensation for the harm: returning all or part of what was defrauded can operate as a mitigating factor with a real effect on the sentence.

If you are facing an investigation of this kind, or you need advice as an affected party, you can read about our approach on our page on criminal defence in pyramid schemes and Ponzi fraud, where we set out how we handle each stage of the proceedings.

Specialist defence with Alonso Sala

Alonso Sala is a criminal defence firm based in Madrid (Calle Velázquez 27), acting throughout Spain. We handle both the defence and the prosecution side of complex economic crime, including pyramid schemes and Ponzi fraud, with economic expert evidence at the centre of the case. Whether you are facing charges or have been harmed by one of these structures, we examine the documentation and the role of each party involved to design the strategy best suited to your situation.