Ponzi Law and Legal Definition

Ponzi schemes are named after Charles Ponzi, who ran a postage stamp speculation scheme in 1919-1920. A Ponzi scheme is an investment scheme in which returns are paid to earlier investors, entirely out of money paid into the scheme by newer investors. Ponzi schemes are similar to pyramid schemes, except that they are operated by a central company or person, who may or may not be making other false claims about how the money is being invested, and where the returns are coming from. Ponzi scemes operate on a "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses.