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Definition: Ponzi scheme


An investment scenario that rewards early investors and defrauds everyone else. Advertised as low risk with high returns, the early investors are paid huge profits, which are heavily advertised to entice more people to come on board. The scheme is finished when there are very few or no more people signing up. The majority of investors lose all their money.

This type of con was named after Charles Ponzi in the 1920s. Ponzi ran a bogus scheme arbitraging coupons that enabled people to prepay postage for a reply to letters sent to a foreign country. See exit scam and NFT rug pull.