Answer: A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator. The scheme is named after Charles Ponzi, who became notorious for using the technique in 1920. Ponzi schemes sometimes commence operations as legitimate investment vehicles, such as hedge funds. However, they quickly devolve into a form of pyramid scheme, in which existing investors are paid returns from the investments of new investors, rather than from profits earned by the operator. As the number of new investors decreases, the likelihood of the scheme coming to an end increases.
