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1. Introduction
A Ponzi scheme may be defined as a form of fraud where a non-existent enterprise is promoted by the payment of quick returns to the first investors from money invested by later investors. It may be distinguished from a Pyramid scheme, in that Ponzi schemes have only one “official” promoter, while all who participate in a Pyramid scheme promote it for their own gain and the fact that the fraud lies in getting people to invest in a fraudulent enterprise as opposed to promoting the scheme for the investor’s own gain. They were named after Charles Ponzi (an Italian immigrant) who started a business guaranteeing a 50 per cent return on money invested to investors in the USA in the 1920s[1]. These schemes promise to offer high financial returns or dividends on investment that are not available in other investment market elsewhere. However, instead of investing the funds received from the victims, the fraudster pays dividends to initial investors using the funds of subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds realised from this schemes or when a sufficient number of new investors cannot be found to allow the continued payment of dividends. A Ponzi scheme can be said to be is an investment fraud that involves payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organisers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. With little or no legitimate earnings, Ponzi schemes are serviced by a constant flow of money from new investors normally recruited by those who have already joined them for a commission. Ponzi schemes will inevitably collapse when it becomes difficult to recruit new investors or when a large number of investors ask for their funds to be returned. These schemes encourage investors to recruit more people being promised to be paid a commission when they do. They can also be called “franchise fraud”, “multi-level marketing” or a “chain referral scheme[2]. ” The inherent risks in Ponzi schemes can be gleaned in the fraud case of Bernie Madoff who had been running a Ponzi scheme for 20 years and reaping investors of...