What is Ponzi Scheme?

A Ponzi scheme is a type of fraudulent investment or scam, often characterized by promising dramatically high rates of return and minimal risk to investors. Ponzi schemes generally function by offering profits to earlier investors with funds obtained by later investors. They often seek to make victims believe profits are coming from legitimate business, when in fact the alleged 'profits' are funds taken from later investors to create a perception of profitability among earlier investors. A Ponzi scheme and a pyramid scheme are related concepts. Ponzi schemes tend to eventually bottom out when the flood of investment capital from new investors starts to die off.