A Ponzi scheme is a fraudulent investing scheme in which returns are paid to existing investors from funds contributed by new investors, rather than from profit earned. The scheme leads investors to believe that profits are coming from legitimate business activities, when in fact they are coming from the contributions of new investors.
The scheme is named after Charles Ponzi, who became infamous for using this technique in the early 20th century.
Typically, Ponzi schemes offer returns that are too good to be true and are often operated by people with little or no financial experience. They may also pressure investors to recruit new investors to earn higher returns.
The scheme relies on the constant flow of new investments to pay the returns of existing investors. As long as there are enough new investors to pay the returns, the scheme can continue. However, when the flow of new investments slows down or stops, the scheme collapses, and most investors lose all or most of their money.
In summary, Ponzi schemes are fraudulent investment operations that pay returns to existing investors from funds contributed by new investors, with little or no legitimate earnings. They are often operated by unlicensed individuals and are highly risky for investors. It's important for investors to be aware of the characteristics of Ponzi schemes and be vigilant to avoid being a victim.
