Definition of Ponzi scheme:
A form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
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.
Scam in which a gullible group is enticed with the promise of very high returns in a very short time, but is based on paying off the early investors from the cash from (hopefully ever increasing number of) new investors. The whole structure collapses when the cash outflow exceeds the cash inflow. The originators of the scheme, however, usually disappear with large sums a few days before the crash. Named after Charles Ponzi (1882-1949), an Italian immigrant to the US who, during 1919-20 collected more than fifteen million dollars from some 40,000 eager people by promising to double their investment in 90 days. See also pyramid scheme.
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.
How to use Ponzi scheme in a sentence?
- After Steve invested in a coworkers business idea, he was disappointed to find out that it was just another Ponzi scheme .
- Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to make investments.
- Federal investigators began looking into the companys affairs on suspicion of running a Ponzi scheme after seeing months of abnormally high returns without any visible product or service offered.
- Both fraudulent arrangements are premised on using new investors' funds to pay the earlier backers.
- Operators use a fraudulent investment operation called a Ponzi scheme to pay returns to those who invest in their operation, from money paid by new investors rather than profit earned.
- Similar to a pyramid scheme, the Ponzi scheme generates returns for older investors by acquiring new investors, who are promised a large profit at little to no risk.
- A classic Ponzi scheme built on treachery and lies.
Meaning of Ponzi scheme & Ponzi scheme Definition