Ponzi Scheme

An investment scheme pays early investors with money from new investors rather than actual profit, creating the illusion of a successful business until new money stops flowing in and the scheme collapses.

An operator collects money from investors while promising steady, above-market returns, but instead of investing the funds in any real business, they simply pay "returns" to earlier investors using money deposited by newer ones. The scheme can appear legitimate for months or years as long as enough new money keeps coming in to cover withdrawals, but it inevitably collapses once new investment slows or a large number of investors try to cash out at once, leaving most participants with total losses.

• Consistently high returns that don't fluctuate with overall market conditions.
• Vague or overly complex explanations of how the investment actually makes money.
• Pressure to recruit other investors as part of the opportunity.
• Difficulty or delays when trying to withdraw funds.

• Be suspicious of consistently high returns regardless of market conditions.
• Verify any investment manager is registered with the SEC or your state securities regulator.
• Ask how the underlying business actually generates the returns being promised.
• Be cautious of pressure to recruit new investors as part of the "opportunity."