Also known as “robbing Peter to pay Paul” this is an illegal scheme whereby a fraudster comes up with a plausible sounding investment opportunity with a near-guaranteed return and persuades an initial batch of investors to commit money.
The fraudster will then make sure that a few of these first investors make the promised return. As word spreads of the profits to be made more investors are lured in but because the underlying investment opportunity is a fake, the fraudster will start to use these fresh deposits to pay some returns to existing scheme members. Provided new investors are enticed in this “pyramid scheme” can keep going. However such schemes usually collapse rapidly and messily once word finally gets out that the promised returns are infact a mirage..