Ponzi scheme

Ponzi schemes are a type of illegal 'rob Peter to pay Paul' operation named after Charles Ponzi who took deposits from 40,000 US investors on the promise of fabulous returns

These schemes are a type of illegal 'rob Peter to pay Paul' operation named after Charles Ponzi who took deposits from 40,000 US investors on the promise of fabulous returns- at one point he claimed to be able to double their money in 90 days if they invested in a fund that exploited a loophole in the pricing of US postal coupons.

Schemes like this grow rapidly as word spreads that early investors have been paid huge rates of return on their capital. The fraudster funds these returns using contributions from the much larger numbers of subsequent investors who are keen not to miss out on the scam opportunity - at one point in 1921, Ponzi took $1million during a single three-hour period.

Eventually, such schemes are doomed to fail. Ponzi managed to take $15 million of subscriptions for a fund that only ever held $30 of postal coupons.

Watch Tim Bennett's video tutorial: What is a Ponzi scheme?

Recommended

Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020
Intangible assets
Glossary

Intangible assets

An intangible asset is anything that a company owns that isn’t physical.
25 Sep 2020

Most Popular

The days when you could get 7% from your bank are long gone – so what do you do?
Bitcoin

The days when you could get 7% from your bank are long gone – so what do you do?

With interest rates at rock bottom for so long, we’ve been forced to move from saving to speculating to earn any sort of return. Dominic Frisby asks w…
24 Feb 2021
Why you should still put money into a cash Isa
Cash ISAs

Why you should still put money into a cash Isa

Interest rates may be lousy, but tax-free saving into a cash Isa is still a good idea.
23 Feb 2021
Why you should pay attention when investment trusts raise new money
Sponsored

Why you should pay attention when investment trusts raise new money

There was a time when buying into an investment trust public offering was a bad idea. But things have changed, says Max King. Investors need to keep a…
23 Feb 2021