Ponzi scheme
A form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.
Ponzi schemes typically promise high returns with little risk. They rely on a constant flow of new money to pay off existing investors, creating the illusion of a successful enterprise, but they inevitably collapse when the supply of new investors dries up.
Word relationships
- legitimate investment: An investment that generates returns from actual economic activity.
Commonly confused with
- pyramid scheme: A 'Ponzi scheme' focuses on attracting new investors whose money is used to pay earlier investors, often without any actual product or service. A 'pyramid scheme' relies on recruiting new members who pay fees, with profits coming from these fees.
Collocations
- run a Ponzi scheme
- uncover a Ponzi scheme
- victims of a Ponzi scheme
Example sentences
- "The infamous Bernie Madoff case was the largest Ponzi scheme in history, defrauding investors of billions of dollars." Reporting on a historical financial scandal.
- "Always research investment opportunities thoroughly to avoid falling victim to a Ponzi scheme." Discussing investment risks.
Memory hook
PONZI sounds like 'phony' and 'easy money' – a phony way to get easy money that eventually collapses. Phony easy money
When not to use
Do not confuse with legitimate investments, even risky ones, which generate returns from actual business activities or market performance.
Fun facts
- Charles Ponzi's original scheme involved international reply coupons, which he claimed to buy cheaply abroad and redeem for higher values in the U.S., exploiting exchange rate differences.
Related words
Explore more words
accumulation, Speculation, Bubble, embezzlement, phishing, investment
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