Ponzi scheme
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A Ponzi scheme is a fraudulent investment where money from new investors is used to pay returns to earlier investors, rather than from actual profits. It matters because it inevitably collapses when new investor money runs out, leaving most participants with substantial losses.
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Article
Charles Ponzi, the namesake of the scheme, in 1920
A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian con artist Charles Ponzi, this type of scheme misleads investors by either falsely suggesting that profits are derived from legitimate business activities (whereas the business activities are non-existent), or by exaggerating the extent and profitability of the legitimate business activities, using new investments to fabricate or supplement these profits. A Ponzi scheme can maintain the illusion of a sustainable business as long as investors continue to contribute new funds, and as long as most of the investors do not demand full repayment or lose faith in the non-existent assets they are purported to own.