Ponzi Scheme or Pyramid Scheme

By October 21, 2015 October 15th, 2017 Glossary

A Ponzi scheme is a fraudulent investment scheme wherein the operator uses the investment funds from a new investor to pay returns to investors already in the scheme. Ponzi schemes usually generate high returns, as long as the operator can continue to attract new investors and the economy stays generally stable. The most widely known recent Ponzi schemes include the Bernie Madoff scandal and the scheme involving Allen Stanford and the Stanford Financial Group. A pyramid scheme is similar to a Ponzi scheme, but it relies on investors to directly bring in new investors. Obviously, it is also heavily dependent on a continual stream of new investors to stay afloat.