Definition - What does Ponzi Scheme mean?
A Ponzi scheme is a type of pyramid scheme in which high returns are promised to investors who give money to the company. However, instead of using the money to make a profit, the company simply keeps a large portion of the money. It pays off earlier investors with money brought in from new investors. Ponzi schemes usually end when no new investors can be brought in.
Justipedia explains Ponzi Scheme
Ponzi schemes are named after Charles Ponzi, who created a famous Ponzi scheme in Boston in 1920. Charles Ponzi's scheme initially brought in $10 million from investors. However, it eventually unraveled, and investors lost most of the money that they had put in.
Ponzi schemes are illegal and those caught trying to carry them out can face legal consequences. The Securities and Exchange Commission and other regulatory agencies commonly investigate such schemes and other similar types of fraud.
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