Sunday, July 23, 2006

What is a Ponzi Scheme?

A Ponzi scheme is an illegal investment opportuntiy. New investors are enticed by promises of high returns in a short period of time.

The most well-known example of a modern day Ponzi scheme was the autosurf site 12dailypro, which crashed in 2006 and has been investigated by the American government. This particular sites offered returns of 12% a day for 12 days, effecivley giving 44% profit in less than a fortnight.

The scheme worked by taking money from new investors to pay out the older investors. In effect no money was actually invested - the money just went up the queue to people who had already put money into the scheme.

Ponzi schemes always crash. As soon as the amount of money coming into the scheme drops, the program will not be able to pay out older investors.

1 comment:

Razib Ahmed said...

It is really funny to me to think that this kind of schemes never failed to attract some fools. Well, not some fools, hundreds of fools. WHenever, some one approaches me I have just one answer- if earning money is so easy then why we work 8 hours a day.