Which description best defines a Ponzi scheme?

• A. A legitimate investment fund
• B. A fraudulent investing scam promising high returns with little risk to investors
• C. A government program
• D. A charity donation scheme

Answer: (B)

Ponzi schemes are fraudulent investment scams that promise high returns with little or no risk. In this setup, the money paid to existing investors comes from new investors’ contributions rather than from any real profits earned by the investment. The scheme keeps going only as long as new funds keep pouring in, which makes it rely on ongoing recruitment and secrecy. When new money slows or many investors try to withdraw, the scheme collapses because there isn’t actual profit to cover the promised payouts. This is why it’s illegal and distinct from a legitimate investment fund, a government program, or a charity donation scheme.