Ponzi scheme is a fraudulent investing scam that promises investors high rates of return (as high as a 50% return on investment) with little to no risk. The scheme generates returns for early investors by acquiring new investors. This is not a sustainable investing scheme as at some point the scheme crumbles due to the lack of a sufficient number of new investors to pay the old investors.
Nowadays, most people who decide to invest in Ponzi schemes are fully aware of the risks associated with such schemes. However, they are willing to gamble with their investments in hopes they will be part of the early group of investors that can get a return for their investment before the Ponzi scheme crumbles. Investors didn’t always know how to identify a Ponzi scheme. In the 1920’s, people fell victim to the scam at the hands of Charles Ponzi, a man who managed to convince numerous people to invest their hard earned money in his Ponzi scheme.