What Is a 'Ponzi Scheme'?

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Ponzi Scheme A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for early 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. Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn't enough money to go around. At that point, the schemes unravel. Read More » Related to "Ponzi Scheme" The 4 Biggest Hedge Fund Scandals Learn about major scandals at hedge funds including the Madoff investment scandal and insider trading cases at SAC Capital, LTCM, and the Galleon Group. Read More » The Biggest Stock Scams of All Time Where there is money, there are swindlers. Protect yourself by learning how investors have been betrayed in the past. Read More » 6 Ways to Avoid an Investment Ponzi Scheme Investments that promise high returns with little risk are everyone's dream – but if they could also be a Ponzi scheme. Here's how to protect yourself. Read More » SPONSORED BY SMARTASSET Financial Advisor Mistakes to Avoid Choosing a financial advisor is a major decision that can determine your financial trajectory for years to come. SmartAsset offers tips on common mistakes to avoid. Learn More » Related Definitions Bernie Madoff Bernie Madoff is an American financier who ran a multibillion-dollar Ponzi scheme that is considered the largest financial fraud of all time. Read More » Arbitrage Arbitrage is the purchase and sale of an asset at the same time in order to profit from a difference in the price. Read More » White-Collar Crime A white-collar crime is a non-violent crime committed by an individual, typically for financial gain. Read More » Pyramid Scheme A pyramid scheme is an illegal investment scam based on a hierarchical setup that pays members higher up in the structure with funds from new members. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy