Ponzischemas

Ponzi schemes are fraudulent investment operations in which returns to earlier investors are paid not from profits earned by the operator, but from the capital of newer participants. They rely on a continual inflow of new funds and often promise high, steady returns with little or no risk. When recruitment slows or redemptions increase, the scheme can no longer meet obligations and collapses, leaving many investors with substantial losses.

Named after Charles Ponzi, who conducted a notorious fraud in the United States in the early 1920s, Ponzi schemes have appeared in various forms around the world. Operators may present themselves as professional fund managers, charitable organizations, or offshore vehicles, using persuasive marketing and seemingly plausible accounting to maintain investor trust.

Common features include unusually consistent returns, lack of transparent or verifiable investment performance, and pressure to recruit others or to reinvest gains. They often use complex or opaque structures, fake audits, or fraudulent testimonials to appear legitimate. A key danger is that the scheme’s apparent success depends on attracting new money rather than generating real profits.

Ponzi schemes are illegal in most jurisdictions and are closely related to pyramid schemes, which rely more explicitly on the recruitment of new participants. In practice, the distinction can be subtle, but both models require ongoing inflows to sustain payouts and both typically deteriorate when new funding slows.

Notable cases include Charles Ponzi and, more recently, large-scale collapses such as the Bernie Madoff scandal. Regulatory authorities worldwide pursue civil and criminal actions to recover losses, prosecute operators, and strengthen investor protections. Red flags include promises of high, consistent returns with little or no risk, unregistered investments, opaque strategies, and pressure to recruit.