what is a ponzi scheme 
a ponzi scheme is an investment scam that pays early investors with money taken from later investors to create an illusion of big profits a ponzi scheme promises a high rate of return with little risk to the investor it relies on word of mouth as new investors hear about the big returns earned by early investors inevitably the scheme collapses when the flow of new money slows making it impossible to keep up the payments of alleged profits a ponzi scheme is similar to a pyramid scheme in that both use new investors funds to pay earlier backers a pyramid scheme usually relies on rewarding early participants to recruit more participants but collapses when the supply of potential participants dwindles investopedia nono floresunderstanding ponzi schemesa ponzi scheme is a type of investment fraud in which investors are promised big profits at little or no risk the money is not invested rather the scam artist concentrates on attracting more investors a growing number of victims is needed to pay out the supposed profits being distributed to earlier investors 