Ponzi Schemes : A Ponzi Scheme

2297 Words May 5th, 2016 10 Pages
A “Ponzi scheme” is defined by the SEC as investment fraud, that incorporates remuneration of professed returns to old investors from funds contributed by new investors. It could be thought of as a systematic process, requiring consistent fraudulent action and deceitfulness. Usually Ponzi schemes are generally short in length, but Madoff’s lasted for almost 30 years. In simpler terms, a Ponzi scheme is built upon the idea of robbing Peter to pay Paul, when in essence no real investment is made (Moaf.org). A Ponzi scheme promoter attempts to appeal to new investors by promising high returns with little to no risk involved. The new money obtained from the unfortunate and hopeful investors is then disbursed to it’s earlier constituents, fostering the distorted front of running a lucrative and profitable business (SEC.GOV). With that being said, a Ponzi scheme demands for the steady and continuous flow of new money to prevent it from collapsing and exposing itself.
The expression “Ponzi scheme” can be traced back to the infamous Charles Ponzi, who in 1920 promised investors an exaggerated 50% returns with the purchase of his “Ponzi notes”. At the time annual bank interest rates were 5%, therefore causing temptation amongst investors. He set up a firm and branded it with a self-assertive label, the Securities Exchange Company and sold inauthentic securities to potential investors (SEC.gov). What the investors weren’t aware of was that the company generated no actual bona fide…

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