Whats a Ponzi scam?

Answer 1

A Ponzi scheme is essentially an investment fraud wherein the operator promises high financial returns or dividends that are not available through traditional investments. Instead of investing victims' funds, the operator pays "dividends" to initial investors using the principle amounts "invested" by subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds, or when a sufficient number of new investors cannot be found to allow the continued payment of "dividends."

This type of scheme is named after Charles Ponzi of Boston, Massachusetts, who operated an extremely attractive investment scheme in which he guaranteed investors a 50 percent return on their investment in postal coupons. Although he was able to pay his initial investors, the scheme dissolved when he was unable to pay investors who entered the scheme later.

Cited from:

http://www.fbi.gov/majcases/fraud/fraudschemes.htm#ponzi

Answer 2

A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business.

Check out the wikipedia article good description!

Answer 3

People invest money. The scammer issues statements showing greater profits than there were. They tell their friends about the profits. The investors invest more and the friends start to invest. Scammer issues more statements. Some of the early investors need their money so the scammer pays them, including "profit" out of the money deposited by later investors. Eventually, the scammer takes off and disappears with all the money. Sometimes they stay around too long. That's what happened in this case. The economy turned bad and everybody wanted their money back at the same time. How did it get to be $50 billion? This was a famous broker. His investors were charitable foundations and pension funds and banks and trust companies from all over the world. Some European banks were putting in a couple of billion of their clients' money in a lump.

Answer 4

Its like if I asked you for $1, promising to give you 100% interest on it in a month. As long I could find enough fools to give me dollars, I would be able to pay you the $2 and still have plenty left for myself. You then tell your neighbors about the guy who would pay 100% interest in a month. They loan you the $1 too. At some point it falls apart. Some guy named Ponzi did that. I think I read that he tried it again even while he was in jail for the first one.

Answer 5

All the earning are based on finding new investors who find new investors, etc. If the pyramid grows fast the people at the top level make lots of money. At some point you run out of people to join and the people at the bottom of the pyramid lose everything.

Answer 6

It's a pyramid scheme where people are payed off by other players lower in the pyramid.

The scam breaks down when the pyramid becomes so big that new members cannot be recruited.

Answer 7

its involves a pyrimid of people

there was a famous one about 10 years ago against some big fund that promised churches they they would match like 2 to 1 money's raised

the first churches raised some money sent it in
more strated to... paying the first chirches
more sent in more money... paying the second churches
more sent in

eventually the pyramid catches up with itself and alot of churches lost alot of money

these kinda of schemes promise beyond what they can supply
and take form the newer ones to pay the old...kinda like paying bills with a credit card... and getting a new credit cards to pay the old...and going on until it collapses

Answer 8

an overhyped, overpromised fraudulent pyramid investment program, stay away!

Answer 9

http://en.wikipedia.org/wiki/Ponzi_scheme