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Ponzi scheme


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A type of banking fraud named after Charles Ponzi, who operated such a scheme in the USA in 1920. Depositors are offered unsustainably high rates of interest (e.g. 50% p.a.) and are initially paid their interest from a fund consisting of new deposits. When the deposits dry up, the bank collapses. Ponzi managed to fool enough depositors to amass a fund of $8M before the police caught up with him. Depositors lost every cent. The term is now used generally for schemes of this sort, based on chain letters.

Subjects: Computing — Financial Institutions and Services.


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