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A Ponzi scheme is a form of investment fraud in which current investors are paid from the assets that are collected from new investors. Clearly, the Ponzi scheme is an unsustainable model, as the fraudster will eventually run out of willing investors, and will be unable to pay back those who bought into the scheme at the end.
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The Ponzi scheme is named for Charles Ponzi, a con man who promised investors in the 1920s that he would pay them a 50% return in just a few months. He told them that the investment was in international mail coupons. But rather than investing the money that people gave him, he used it to pay the previous investors their supposed returns.
As with all the subsequent, similar frauds that bore his name, Charles Ponzi’s scheme collapsed when he stopped being able to convince new customers to invest.
How To Identify a Ponzi Scheme — Before You Invest
All Ponzi schemes have some characteristics in common, making them fairly easy to identify as long as you don’t let your emotions cloud your judgment. Here are some things to ask yourself when evaluating an investment, so you don’t fall…
