Ponzi scheme

Ponzi Scheme

A fraudulent investing scam that promises high rates of return at little risk to investors. The scheme generates return by acquiring new investors.

Notes:

The Ponzi scam is named after Charles Ponzi, a clerk in Boston, who first orchestrated such a scheme in 1919.

Although a Ponzi scheme is similar to a pyramid scheme in that both are based on new investors' funds to pay the earlier backers, they differ in that the Ponzi mastermind signs up new investors, who are used to attract potential investors, rather than the hierarchical pyramid setup whereby all the investors do the recruiting. Eventually, there isn't enough returns to go around and the schemes unravel.

See also: Bre-X Minerals Ltd., Caveat Emptor, Prime Bank, Pyramid Scheme, ZZZZ Best

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Ponzi scheme

See pyramid.