A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, this type of scheme misleads investors by either falsely suggesting that profits are derived from legitimate business activities, or by exaggerating the extent and profitability of the legitimate business activities, leveraging new investments to fabricate or supplement these profits. A Ponzi scheme can maintain the illusion of a sustainable business as long as investors continue to contribute new funds, and as long as most of the investors do not demand full repayment or lose faith in the non-existent assets they are purported to own.
Charles Ponzi, the namesake of the scheme, in 1920
Charles Ponzi
Charles Ponzi was an Italian swindler and con artist who operated in the U.S. and Canada. His aliases included Charles Ponci, Carlo, and Charles P. Bianchi.
Ponzi c. 1920
Mug shot, c. 1910
Ponzi in 1920, while still working as a businessman in his office in Boston
Even before his trial, Ponzi's name had begun to pass into the language as a fraudster. This 25 September 1920 ad for Washington Mutual Savings Bank in Seattle, declares, "Don't Be Ponzied".