A ponzi scheme is an investment scam where investors are promised, and seemingly delivered, unusually high rates of return.
In a ponzi scheme, the scam artist pools the funds received from victims, living off some and paying a portion back to the investors as interest or gains. The scam artist supplies the victim with false documentation or account statements making it appear as if their investment is still intact and earning an exceptional rate of return.
Naturally, this often encourages investors to sink more money into the ponzi scheme as well as publicize this "great investment" to their friends and other potential investors.
As the ponzi scheme grows, or when a number of investors start requesting the return of their original investment plus its earnings, the scam artist reaches a point where he or she cannot collect enough new money to pay off the old investors. At this point, the ponzi scheme collapses and the authorities become involved.
