What is a Ponzi scheme? As described by Investopedia, a Ponzi scheme is “a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. For both Ponzi schemes and pyramid schemes, eventually there isn’t enough money to go around, and the schemes unravel.” In a Ponzi scheme, the people behind the scheme make money at the expense of the investors.