Ponzi Scheme Law and Legal Definition

Ponzi scheme refers to a fraudulent investment operation in which investors are paid returns from their own money. Returns are not paid from actual profit earned. Ponzi scheme attracts new investors because they offer attractive returns which other investors fail to guarantee. They guarantee high short term returns. Ponzi scheme is a sham scheme and operates in the form of a social security. Ponzi schemes and social security have similar structures but having different goals.