In the 1920s, Charles Ponzi carried out this scheme and became well-known throughout the United States because of the huge amount of money that he took in.After this scheme collapsed – this notoriety eventually led to the type of scheme being named after him.”His scheme ran for over a year before it collapsed, costing his “investors” $20 million (inflation adjusted to $250 million as of 2020)
Thus, Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. In simple terms, the returns of the initial investor will be paid from the investment of the next investor and this chain continues without any solid investment plan. In short, they merely transfer funds from one client to another and forgo any real investment activities.
Example
>Ponzi Scheme The most famous Ponzi scheme in recent history—and the single largest fraud of investors in the United States—was orchestrated for more than a decade by Bernard Madoff, who defrauded investors in Bernard L. Madoff Investment Securities LLC.
Madoff built a large network of investors that he raised cash from, pooling his almost 5,000 clients’ money into an account he withdrew from. He never actually invested the money, and once the financial crisis of 2008 took hold, he could no longer sustain the fraud. The total loss to investors to be around $65 billion. Madoff expired on 14 April, 2021 while serving imprisonment.
The controversy sparked a period in late 2008 that is known as Ponzi Mania, in which regulators and investment professionals were on the hunt for other Ponzi schemes.