A Ponzi Scheme is defined as
“… an investment fraud where clients are promised a large profit at little to no risk. Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to make investments. This new income is used to pay original investors their returns, marked as a profit from a legitimate transaction. Ponzi schemes rely on a constant flow of new investments to continue to provide returns to older investors. When this flow runs out, the scheme falls apart”
– From Investopedia’s Ponzi Scheme
Ponzi Schemes have the following properties
- A guaranteed promise of high returns with little risk
- Consistent flow of returns regardless of market conditions
- Investment strategies that are a secret or described as too complex
- Clients facing difficulties removing their money
