Ponzi scheme

A Ponzi scheme is a fraudulent investment operation that involves paying returns to investors out of the money raised from subsequent investors, rather than from profits generated by any real business. A Ponzi scheme offers high short-term returns in order to entice new investors. The high returns that Ponzi schemes advertise require an ever-increasing flow of money from investors. Once the flow of new investment stops, the scheme is doomed to collapse.

Related Topics:
Fraudulent - Investment

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The scheme is named after Charles Ponzi, who became notorious for using the technique after immigrating to the United States from Italy in 1903. The manner of Ponzi's initial scheme was actually fairly crude, one of the apparent reasons being that he himself believed that he had found a way to legally generate large profits.

Related Topics:
Charles Ponzi - United States

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Today's schemes are often considerably more sophisticated than Ponzi's (though the underlying formula is often quite similar), but the idea behind every Ponzi scheme is to exploit the basic human trait of greed.

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