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Ponzi Scheme: Fake Gains from Victims
A Ponzi scheme is a type of financial scam that relies on collecting investors' money by promising high, steady returns in a short period, while implying that the investment carries low risk. It does not depend on genuine investments or profitable economic activities; instead, it uses money from new investors to pay fake returns to earlier investors, creating a false impression of success and attracting more participants. This scheme continues as long as new investors keep coming in but inevitably collapses when the flow of new investors stops or when many investors request to withdraw their funds, as there aren’t enough funds to pay everyone. The most famous example is Charles Ponzi's scheme in 1920, which promised high returns through exploiting international postal coupons. The scam was eventually uncovered, leading to significant losses for many investors, totaling billions of dollars in cases such as Bernie Madoff in 2008.
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