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What is a Ponzi scheme and how does it work?

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What is a Ponzi scheme and how does it work?

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According to US financial regulator the Securities and Exchange Commission, Ponzi schemes are a kind of pyramid scheme which operate on “the `rob Peter to pay Paul’ principle”. With the promise of large returns as bait, the fraudster takes in money from new investors and uses it to pay off the earlier investors until no more new recruits can be found and the whole scheme collapses, with the newest investors losing everything.

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