Ponzi Scheme

Ponzi schemes are dishonest investment practices that function by repaying older investors with funds obtained from new ones. The participants in these fraudulent schemes typically feel that the return they would receive is the result of a legitimate investment because these scams are typically disguised as investment management services.

Often, fraudsters use promises of quick and big gains to entice investors, but in reality, they are essentially robbing one investor to pay the other. The issue with such a system is that the backend investors won’t receive any money at all.

Charles Ponzi, an Italian con man who immigrated to North America and rose to fame for his money-making fraudulent scheme, is the inspiration behind the name of the Ponzi scheme. Early in the 1920s, Ponzi was successful in defrauding hundreds of people, and his scheme was active for more than a year.

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