Ponzi Scheme

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Definition of 'Ponzi Scheme'

A Ponzi scheme is a fraudulent investment operation that pays existing investors with funds collected from new investors. Ponzi schemes are named after Charles Ponzi, who became notorious for his 1920s Ponzi scheme that defrauded thousands of investors out of millions of dollars.

Ponzi schemes are often difficult to detect because they typically offer high returns with little or no risk. This makes them attractive to investors who are looking for a quick way to make money. However, Ponzi schemes are ultimately unsustainable because they rely on a constant influx of new investors to keep the scheme going. Once the flow of new investors dries up, the Ponzi scheme collapses and investors lose their money.

There are a number of red flags that can indicate that a Ponzi scheme is operating. These include:

* Promises of high returns with little or no risk
* A lack of transparency about how the investment is being managed
* A focus on recruiting new investors rather than generating profits
* A lack of a track record of success

If you suspect that you are involved in a Ponzi scheme, it is important to take action immediately. You should contact the authorities and withdraw your money from the scheme as soon as possible.

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