We often read in news papers about some financial organisations shuttling their doors and not returning the hard earned money deposited by innocent people.
Such schemes are known as Ponzi schemes.
A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors.
Ponzi scheme investors often promise to invest the collected money and generate high returns with no risk.
But these fraudsters do not invest money.
Instead they use the recently collected money to pay those who invested in the scheme earlier.
With no legitimate earnings, Ponzi schemes requires a constant flow of new money to survive.
When it becomes hard to recruit new investors or existing investors cash out in large number, these schemes collapse.
Ponzi schemes are named after Charles Ponzi who duped investors for the first time in 1920 with such a scheme.
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