A form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
- When such ventures are attempted in the private sector, they go by the name of pyramid or Ponzi schemes and constitute criminal fraud.
- These returns were actually generated from the principal of members who joined later - a classic Ponzi scheme which uses new money to pay off old ‘profits’.
- It's a bit like a Ponzi scheme, where initial investors are paid off with money from subsequent investors to make it appear that the investment is a success and drum up more investors by word of mouth.
Named after Charles Ponzi (died 1949), who carried out such a fraud (1919–20).
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Syllabification: Pon·zi scheme
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