Ponzi scheme

  

Definition

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.

Use Ponzi scheme in a sentence

  • Federal investigators began looking into the company's affairs on suspicion of running a Ponzi scheme after seeing months of abnormally high returns without any visible product or service offered.

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  • 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.

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  • After Steve invested in a coworkers business idea, he was disappointed to find out that it was just another Ponzi scheme.

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