Ponzi scam (scheme) - what is it?

At the beginning, the scheme can appear successful because those who join early do receive the promised returns, which encourages more people to invest. This positive feedback loop makes it seem like the investment is performing well, attracting more new investors. As long as new participants keep coming in, the organizer can continue to pay out returns, thereby maintaining the illusion of success.However, the entire scheme is fundamentally unsustainable. Eventually, the pool of new investors runs out, and there is not enough money to pay returns to all the participants who expect them. When this happens, the scheme collapses, leaving the most recent investors with significant losses, as there is no real underlying asset or investment generating the promised returns.The scheme is named after Charles Ponzi, who orchestrated such a scam in the United States in the early 20th century. Ponzi convinced thousands of people to invest in a venture involving international postage stamps, promising them substantial returns in a short period of time. For a while, he used the funds from new investors to pay earlier ones, which made the operation seem legitimate. Eventually, the scheme unraveled when there weren't enough new investors to sustain the payouts, and Ponzi was exposed as a fraud. His actions gave this type of scam its name, and Ponzi schemes have since been illegal in many countries.A famous modern example of a Ponzi scheme is the case of Bernard Madoff, whose fraudulent investment operations were uncovered in 2008. Madoff's scheme lasted for around 20 years and is considered one of the largest Ponzi schemes in history, with estimated losses totaling $50 billion, affecting thousands of investors including charitable organizations, European banks, wealthy individuals, and celebrities.More about Ponzi fraud: Spouses who bought apartments in Austria are suing the developer Motti GruzmanMore about most common fraud schemes