What is a “Ponzi” Scheme?
A Ponzi scheme is a form of investment fraud in which a company finances its payouts of returns to investors using money paid by new investors. In some cases, the proposed investment program never existed. Those investments are typically promoted as guaranteeing high return investments with little or no risk and the influx of new investors keeps the scheme from quickly collapsing. The funds generated by the Ponzi scheme are usually spent by the manager of the scheme living beyond their means, sometimes as a very lavish lifestyle. This lavish lifestyle can actually make the Ponzi scheme more successful because the manager of it seems to be very successful.
However, sometimes investment opportunities begin legitimately but poor managerial decisions result in losses or a failure to meet the promised results. To conceal the losses, managers falsify account balances to hide evidence of wrongdoing.
