Hello and welcome to Money Girls Quick and Dirty Tips for a richer life.

I'm your host Laura Adams. This show is about Ponzi schemes and tips to help you

identify these incredibly risky investments.

Fonzi is a cool guy from the classic sitcom Happy Days.

Ponzi was a very uncool guy from the 1920s who built investors out of millions using an illegal business model. Charles Ponzi didn't actually invent the scheme but he certainly became notorious for it.

He was buying international postal reply coupons at a discount and then redeeming

them for U.S. postage stamps at a higher value.

He promised investors amazing profits that were supposed to come from this legitimate business.

However, this wasn't where the investment money was really going.

I'm sure you're familiar with one of the latest and biggest Ponzi schemes in history perpetrated by Bernard Madoff.

Yes, he's the guy who made off with over $50 billion of his investors,

or should I say victims money.

Ponzi scheme is now a term used for any fraudulent operation

that promises a high return to investors. The fraudulent part comes from

the fact that the returns are not generated by profit from legitimate investments.

The high returns are paid to investors out of money received from new investors,

so the new money is what makes the promised high returns to earlier investors possible.

This House of Cards holds up only as long as there's a steady stream of new investors injecting

money into the operation.

Ponzi's eventually collapse under their own weight when they get so big that the inflow of new money can't cover all the promised payouts.

And as more investors get involved, the chance that someone will alert the authorities increases.

Some Ponzi such as Madoffs are even registered with the SEC.

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