The little or no risks. Basically, there is no

 

The scheme is named after Charles
Ponzi, an Italian swindler whom also a con artist in United States and Canada.
He became famous for using this method during the 1920s in North America where he
duped thousands of his clients by guaranteeing a 50% or 100% return on investment within 45 days or 90 days respectively.
He made it looked like as if his money-making scheme operated by buying
discounted postal reply coupons in other countries and later redeemed them at
face value in United States as a form of arbitrage. Meanwhile in reality, what
he did was paying the old investors using funds invested by the later
investors.

A Ponzi scheme is an investment fraud
whereby the Ponzi schemer often lures its investors to invest their funds while
promising them high returns in short term with little or no risks. Basically,
there is no real trading or legitimate investment activity done with the
investment money but the fraudsters simply made the redemption payment to its
existing investors by using capital injected by new
investors. Therefore, in many Ponzi scheme modus operandi, the fraudsters will
try to solicit as many new investors as they can to maintain constant or much
bigger flows of money. This is to ensure that they can have more than enough
money to continually provide returns to older investors. At the same time, it
makes the whole financial trading operation looks profitable and legitimate in
the eyes of their investors, even though no real profit is being made.

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Meanwhile the Ponzi schemer,
which can be either individuals or corporations, pockets the extra money they
made or use them to expand the operation. In the beginning, the Ponzi operator
will pay high returns on the investor’s initial investments to persuade the
current investors to invest more money in their accounts. When this happened,
the current investors are more confident with the growing returns and often
leave their money with the scheme. This benefits the operator as they do not
have to pay much to the investors. Then, all they need to do is to simply send periodically
statements to their investors showing how much they
have earned, which maintains the deception that the scheme is an investment
with great returns. . Ponzi
schemes do not usually advertise as they do not need to. The current investors
tell the new ones and the words spread
like wildfire. (Wells,
J. T., 2010).Not only that, the operator
usually will secretly keep their investing strategy as they claim to protect
the investors

However, the Ponzi scheme also
has its vulnerability whereby it will falls apart when the Ponzi schemer fails
to acquire new investors and the money flows run out, the operator takes all
the remaining investments and runs or when too many current investors begin to
request their returns especially in the state of financial turmoil. In short,
the Ponzi scheme will not sustain forever.