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Finance Dictionary and Glossary of Investment Terms
An illegal investment scheme in which investors are promised impossibly high returns on their investments. These are scams in which money from later investors is used to pay earlier investors. The creators of the scheme get most of the profits while those who come later are left with nothing because there are eventually an insufficient number of new investors to pay the existing ones. These scams inevitably collapse because they require exponential growth in the number of participants at each step, which is impossible. Letters or emails that encourage the recipient to send money and then pass the message along to a certain number of new targets are a type of pyramid scheme.
An illegal investment scheme in which investors are promised substantial returns on their investments. Early investors at the top of the pyramid are paid with money from later investors.