What is Ponzi?

The Ponzi tactic is a method of raising funds by deceiving potential investors with promises of high returns. The financing from new entrants is supported by payments made to previous investors.

In this scheme, as new individuals join the system, promises made to existing participants are honored while attractive offers are also presented to newcomers. This strategy provides high returns in the short term. However, if new resources cannot be continuously sourced, the system faces financial challenges and eventually collapses.

The fundamental rule of the Ponzi method is to finance the gains of existing investors without the contributions of new investors. This is critical for the system to operate. However, the constant need to secure funds becomes unsustainable over time, and when the flow of funds ceases, the system unravels.


This tactic was popularized by Charles Ponzi in the 1920s. Ponzi, an Italian-born entrepreneur, exaggerated the opportunities of international postage stamps in the U.S., deceiving many individuals. However, Ponzi's promises were unfounded, leading to victims. As a result, Ponzi was prosecuted and sentenced to five years in prison.