• A Ponzi scheme is defined as a kind of financial fraud in which a single person or tight-knit conspiracy offers high returns on an investment, but does not actually invest the bulk of the money that is solicited. Instead, the kingpin will take a portion of the money for himself, and pay early investors with money from more recent ones.Securities and Exchange Commission: [http://www.sec.gov/answers/ponzi.htm

  Ultimately, the kingpin and a minority of investors can become wealthy by lining their pockets with other investors' money. In March 2009 the IRS announced that victims of Ponzi schemes could file for a refund of capital gains taxes paid on phony dividends received through the scheme.http://www.washingtonpost.com/wp-dyn/content/article/2009/03/17/AR2009031701911.html?hpid=moreheadlines

• Fast Facts

  1. Named after Charles Ponzi
  2. Usually promises high returns in the short termMuseum of Hoaxes: Ponzi Scheme
  3. Type of pyramid schemeSecurities and Exchange Commission: "Ponzi" Schemes
  4. No product involved
  5. Money moves up a chain to the founder
  6. Continually requires new people to continue the scheme
  7. Recruiters point at the successful top figures to lure in new participants
  8. Most people involved never realize it is a scam
  9. Old adage "if it sounds to good to be true, it probably is" applies

• Definition of Ponzi Scheme

  According to the U.S. Securities and Exchange Commission, a Ponzi scheme is defined as a "rob-Peter-to-pay-Paul principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses."Securities and Exchange Commission: "Ponzi" Schemes

• Charles Ponzi's Scheme

  Between 1919 and 1921, an Italian immigrant named Charles Ponzi administered an investment plan that would become the prototype for the Ponzi scheme. Originally, Ponzi discovered a way to legally take advantage of exchange rate differences in postage stamps, and began to solicit investors in the operation. Within months he had amassed up to 40,000 investors and ended up paying out from the investments themselves, rather than actual profits.Museum of Hoaxes: Ponzi Scheme He was convicted on fraud in 1921, after making millions for himself.Museum of Hoaxes: Ponzi Scheme

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