Investopedia

Continue to Site »

Ponzi Scheme

Filed Under » , ,
Dictionary Says

Definition of 'Ponzi Scheme'

A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.

Investopedia Says

Investopedia explains 'Ponzi Scheme'

The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919.

A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system.

For both schemes, however, eventually there isn't enough money to go around and the schemes unravel.

Related Video for 'Ponzi Scheme'

Articles Of Interest

  1.

    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.

  2. What Is A Ponzi Scheme?

    Protect yourself from scams by learning the structure behind this fraudulent investing scheme.

  3. The Ghouls And Monsters On Wall Street

    Learn about some of the creepiest cases of fraud and the characters behind them.

  4. What is the difference between a Ponzi and a pyramid scheme?

    Pyramid schemes and Ponzi schemes share many similar characteristics in which unsuspecting individuals are fooled by unscrupulous investors who promise extraordinary returns. However, in contrast ...

  5. What Is A Pyramid Scheme?

    Considering joining an "investment club" that promises phenomenal returns on your sign-up fee? Read this article and think again!

  6. How To Avoid Falling Prey To The Next Madoff Scam

    Due diligence does work, but the loose reporting standards for hedge funds make extra care and attention necessary.

  7. How To Safeguard Your Tax Returns From Identity Theft

    Identity thieves love tax season. In 2012, there were 13 million victims of identity theft. As easy as it is for thieves to steal your information, there are also simple measures you can take ...

  8. How To Report A Tax Cheat

    If you report a tax evader to the IRS, you could be eligible for a reward.

  9. How To Identify A Micro-Cap Scam

    Discover how to distinguish a real investment opportunity from a fraudulent one.

  10. The Underground Internet Economy Of Cybercrime

    Cybercrime represents an underground economy worth $114 billion. Let's take a look at how this economy operates.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  2. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  3. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  5. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  6. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
Trading Center