What Is A Ponzi Scheme
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A Ponzi scheme is a type of fraud where investors are promised big profit at little or no risk
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The money is not invested. Instead, the conman focuses on luring more people and pays profits to the initial investors with funds from more recent ones
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Formerly known as "Rob Peter to Pay Paul", this type of fraud has come to be called a Ponzi scheme after businessman Charles Ponzi
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Charles Ponzi, an Italian businessman, pulled off a very large and infamous example of the scheme in 1920
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He did it by creating a fake investment company supposedly based around buying international postal vouchers in Europe and redeeming them for more expensive US postage stamps
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Ponzi schemes exploit the trust of investors and perpetuate a cycle of fraud
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To sustain payments to existing investors, Ponzi schemes usually have to attract new investments at an exponentially growing rate
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