Ponzi Schemes

Now, let's learn about an even more elaborate and nefarious crime: Ponzi Schemes.

You’ve learned about Pump and Dumps, but there’s another common scam that’s even more elaborate: Ponzi Schemes 👀

Here's how it works: someone starts a company or investment fund and asks other people to invest in it…

But instead of generating profits legitimately, they just use new investors' money to pay back earlier investors, creating an illusion of a cash-flowing business 🔄

There's no real profit being made, and as the scheme grows larger and larger, it needs to recruit more and more new investors to pay back existing ones.

The scheme collapses when it can't recruit new investors or when too many investors try to cash out 💥

It's like musical chairs – when the music stops, not everyone finds a seat 🎶🪑

Similar to Pump and Dumps, Ponzi Schemes promote high returns with low risk, as well as an opportunity to “get rich quick” – both of which are big red flags in investing 🚩

Test your knowledge

What funds a Ponzi scheme’s payouts to its investors?

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What happens when a Ponzi scheme collapses?

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What is a major red flag that might indicate a Ponzi scheme?

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How is a Ponzi scheme similar to musical chairs?

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What's next?

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The Wolf of Wall Street

You might have seen the film "The Wolf of Wall Street". Let's learn about its main character!

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Enron

Enron was one of the biggest bankruptcy case in US history, but why did it collapse?

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Bernie Madoff

Perhaps the most famous stock market criminal in history, Bernie Madoff ran the largest Ponzi Scheme ever.

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