What is a Ponzi scheme? The fraud that pays old investors with new money
By SendPay Business · · 2 min read
A Ponzi scheme is an investment fraud that pays earlier investors with money from new investors, not from any real profit. It is named after Charles Ponzi, who ran one in the United States in 1920. The best-known recent case is Bernard Madoff's, which collapsed in 2008.
How it works
- The organiser promises high, steady returns.
- Early investors are paid their returns from later investors' money.
- Happy early investors bring in more people.
- When new money slows, the scheme can't pay and collapses.
Ponzi vs pyramid scheme
In a Ponzi scheme, investors usually think their money is being invested and don't recruit. In a pyramid scheme, people are openly paid to recruit others. Both depend on new money and both collapse.
Warning signs
Guaranteed high returns with little or no risk, returns that are unusually steady whatever markets do, vague or secret strategies, difficulty withdrawing money, and pressure to bring in friends are classic signs. Many crypto frauds have followed this pattern.
Where SendPay fits
SendPay does not offer investments or pay interest. It is software for launching your own branded money app, with accounts, cards, payments and crypto, powered by licensed partners.
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.