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Ponzi scheme and Ponzi game

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  • Ponzi scheme and Ponzi game are terms that came into use in the twentieth century, though the concept is probably older. We will examine the definition of Ponzi scheme and Ponzi game, where these terms came from and some examples of their use in sentences.

    A Ponzi scheme, sometimes referred to as a Ponzi game, is a type of investment scam or financial fraud in which the financier pays off early investors with the money contributed by later investors. In a Ponzi scheme or Ponzi game, no money is actually invested in financial instruments, it is simply a way to funnel cash. A pyramid scheme is similar to a Ponzi scheme, however there is a difference. In a Ponzi scheme, the manager is the major beneficiary of the fraudulent activities, though early investors will see a benefit. In a pyramid scheme, new members of the pyramid must recruit still newer members in order to benefit. One of the most famous perpetrators of a Ponzi scheme is Bernie Madoff, who was convicted of eleven federal crimes for defrauding his investors and sentenced to one hundred fifty years in prison. Though the Securities and Exchange Commission was alerted to irregularities in Madoff’s hedge fund as early as 2000 by accountant Harry Markopolos, Madoff was not convicted of a crime until 2009. The term Ponzi scheme or Ponzi game is derived from the swindler Charles Ponzi, who made a fortune in the 1920s running a financial fraud that collapsed and cost his investors twenty million dollars. The terms Ponzi scheme and Ponzi game did not come into general use until the mid-1950s. Note that the word Ponzi is capitalized, as it is a proper name.

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    Examples

    A Connecticut financial adviser has been charged with running a Ponzi scheme and defrauding clients out of more than $1 million. (US News & World Report)

    Business activity has been marred by sustained phases of tepid industrial growth, a petering out of investments, limited employment opportunities, an over-reliance on Central funds and a deferred liability practice in government accounting that has been compared to “a classic version of a Ponzi game”. (Greater Kashmir)

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