Financial Terms / O - P / Ponzi scheme

Ponzi scheme

A Ponzi scheme is a scam in which the organizers use money from new investors to pay off old investors. Ponzi scheme operators advertise high capital returns with little or no risk to lure unsuspecting investors.

It was named after Charles Ponzi, a 1920s businessman who successfully persuaded tens of thousands of clients to invest their funds with him. He said he was selling discounted postal reply coupons to get these profits but instead used new funds from investors to pay off earlier investors in the scheme.