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A Ponzi scheme is a variant of the centuries-old fraud popularly known as “robbing Peter to pay Paul,” which requires luring an initial group of gullible investors by offering them an improbably high return on their money, presumably made possible by investing their funds in a superbly profitable business venture. In reality, this great enterprise is either nonexistent or is merely a front, and the initial investors are actually paid with the funds provided by a second group of investors. These, in turn, are paid with the funds provided by a third group, and so on. The term Ponzi scheme is now used generically to describe all such swindles.

This type of fraudulent scheme takes its name from the Italian immigrant Charles Ponzi (1882–1949), who in ...

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