There's an old saying that if it sounds too good to be true, it probably isn't. That way of thinking applies to Ponzi schemes.
According to the Australian Taxation Office, a Ponzi scheme is "a form of fraud that attracts investors by promising high returns with little to no risk. New investors bring in money which pays dividends, or other types of payments, to existing investors. There is no actual investment offered by scheme operators."
Existing investors in a Ponzi scheme receive money from new investors - but don't know that this happening, and are unlikely to suspect anything suspicious is up as long as the money keeps coming in. As such, investors may encourage others into the scheme, thinking it's a good deal.
"Ponzi schemes need new investors and their money to survive. When scheme promoters fail to attract new investors, the scheme will collapse, leaving most new investors out of pocket and with little to no recourse to recoup their losses," the office said.
Here are signs to look for:
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