Ponzi Scheme

A Ponzi scheme is a fraudulent investment operation in which the operator, or fraudster, promises high returns to investors. It operates by using funds from new investors to pay returns to existing investors, rather than generating legitimate profits or returns through actual investments. The scheme typically requires a constant flow of new investors to sustain itself.

Initially, early investors may receive high returns as their investments are paid off with money from new investors. This can attract more investors who are enticed by the high returns. However, the scheme eventually collapses when it becomes difficult to recruit new investors or when a large number of existing investors try to cash out their investments. At this point, the fraudster is unable to fulfill the financial obligations and the scheme unravels, resulting in losses for most participants.

Ponzi schemes are inherently unsustainable and illegal as they rely on an ever-increasing amount of new investors to pay profits to earlier investors. They deceive people by presenting an illusion of a profitable investment opportunity, while in reality, the funds are funneled to the fraudster.