Ponzi Scheme Definition - Glossary

A Ponzi Scheme is a fraudulent investment scam that pays returns to earlier investors using new investors' funds.

A Ponzi Scheme is a deceptive investment scam promising high returns with little risk. It generates returns for older investors by acquiring new investors' funds, rather than from profit earned by the operation of a legitimate business. The scheme leads investors to believe that profits are coming from legitimate activities. Eventually, the scheme collapses when it becomes difficult to recruit new investors or when many existing investors cash out. Named after Charles Ponzi, who became infamous for using this technique in the 1920s, Ponzi Schemes are illegal and result in significant financial losses for participants.