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A '''Ponzi scheme''' is a financial fraud, named after Charles Ponzi, a flamboyant Boston man who swindled thousands of people in 1919-20, and went to prison for it.

A '''Ponzi scheme''' is a financial fraud, named after Charles Ponzi, a flamboyant Boston man who swindled thousands of people in 1919-20, and went to prison for it.

The schemer offers very high returns, using a winning personality that overcomes the reluctance of investors.  Supposedly the schemer has a secret sure-fire technique for making money legitmately; everyone assumes he is honest.  The first and second rounds of investors put in money, and the first round gets large returns as promised; word spreads. The money given to the people in the first round comes from the second round investors. Then the money from the third round investors is used to pay off the first and second round.  The money from the fourth round--assuming it lasts that long, is used to pay off the first, second and third groups. The scheme continues as long as more and more people flock to invest. Ponzi schemes typically collapse after a few rounds.

The schemer offers very high returns, using a winning personality that overcomes the reluctance of investors.  Supposedly the schemer has a secret sure-fire technique for making money legitmately; everyone assumes he is honest.  The first and second rounds of investors put in money, and the first round gets large returns as promised; word spreads. The money given to the people in the first round comes from the second round investors. Then the money from the third round investors is used to pay off the first and second round.  The money from the fourth round--assuming it lasts that long, is used to pay off the first, second and third groups. The supposed genuine investments never took place.  The scheme continues as long as more and more people flock to invest. Ponzi schemes typically collapse after a few rounds.

By far the largest Ponzi scheme was discovered in December 2008, when it appeared that well=-respected New York City financier  Bernard L. Madoff had bilked investors worldwide out of vast sums, perhaps as much as $50 billion over a period of decades.  

By far the largest Ponzi scheme was discovered in December 2008, when it appeared that well=-respected New York City financier  Bernard L. Madoff had bilked investors worldwide out of vast sums, perhaps as much as $50 billion over a period of decades.