By Dylan Donley, Spring 2014 Graduate Research Assistant
A Ponzi scheme is an investment scam that involves the payment of purported returns to existing investors from funds contributed by new investors. Fraudsters tend to advertise these types of scams by promising to invest funds from investors in opportunities with high returns and no risks, and continue to attempt to attract new investors in order to make the promised payments to earlier stage investors. In this way, fraudsters essentially create a pyramid of investors who have provided funding at various stages, with the newest investors paying the older investors. Ponzi schemes tend to collapse when the fraudsters are no longer able to recruit new investors or when a large number of investors asks to cash out.
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