Dec 22 2008
What is a Ponzi scheme?
What is a Ponzi scheme? For those of you who don’t know what a Ponzi scheme is, it is essentially a very large organized fraudulent investment scheme in which early investors do get some huge returns - paid for by subsequent investors.
In essence a person says they have an investment opportunity and they get some people to buy in, promising great returns. They get some more people to buy in, and use the money from the newest people to pay off to first investors - thereby building some credibility. They then use this credibility to go out and get more people to invest. Eventually, of course the fraud will be revealed when nobody is making anymore money - except of course for the person running the scheme.
Typically a Ponzi scheme will not last for too long. Afterall it takes a lot of work to maintain, so doing some smart research can reveal the high degree of risk involved with the investment. As always, if it sounds too good to be true it probably is.
