define ponzi scheme
A Ponzi scheme is a type of investment Fraud that promises investors exorbitant interest if they loan their money. As more investors participate, the money contributed by later investors is paid to the initial investors, purportedly as the promised interest on their loans. A Ponzi scheme works in its initial stages but inevitably collapses as more investors participate.
Related to Ponzi Scheme: hedge fund, MMM, pyramid scheme, Bernie Madoff. A fraudulent investment plan in which the investments of later investors are used to pay earlier investors, giving the appearance that the investments of the initial participants dramatically increase in value in a short amount of time.