What is a ‘Ponzi Scheme’

 

The Ponzi scheme generates returns for older investors by acquiring new investors.

This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.

 

BREAKING DOWN ‘Ponzi Scheme’

This new income is used to pay original investors their returns, marked as a profit from a legitimate transaction.

Ponzi schemes rely on a constant flow of new investments to continue to provide returns to older investors. When this flow runs out, the scheme falls apart.

 

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