What is a Ponzi scheme?
Q: What is a Ponzi scheme?
A: A Ponzi scheme is a type of fraud where one schemer (or group of schemers) gets other people to give them money for a fake investment. The more money the investors give, the more the schemer promises they can earn. However, all of the money comes from the investors and not from any real investments.
Q: How does a Ponzi scheme end?
A: A Ponzi scheme will always crash when it gets too many investors because they all expect more money than they invested and become impatient. It can end in three ways - either the schemer runs away with the money, they run out of money due to lack of liquidity or authorities find out about it and stop it.
Q: Who was Charles Ponzi?
A: Charles Ponzi was an Italian man who moved to America in 1903 and used this type of fraud after his arrival. He became famous for running such schemes on a large scale but he did not invent them as similar schemes had been written about by authors like Charles Dickens before him.
Q: How did Charles Ponzi's original scheme work?
A: His original scheme involved using countries' currency exchange rates to make money based on international postage stamps. Money would be invested in coupons rather than actual investments, with some going back to early investors and much going directly into his own pocket.
Q: Are there still Ponzi schemes being run today?
A: Yes, unfortunately there are still many people running these types of scams both online and offline even now.
Q: What book did Charles Dickens write that featured a similar scam?
A: In 1857, Charles Dickens wrote a book called Little Dorrit which featured a scam similar to what we know as a Ponzi scheme today
