Karis Brokerage, Inc.

Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. In fact, a Ponzi scheme must have abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going.

The system is doomed to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. (As more and more investors become involved, the likelihood of the scheme coming to the attention of authorities will continue to increase.)

In an illegal pyramid, new investors on the bottom level pay money to a few people at the top. They may hold investor meetings where they create a frenzied and enthusiastic atmosphere where group pressure and promises of easy money prey on people's greed and fear of missing out on a good deal. Some pyramids are easily recognizable and are as simple as a chain letter. Others are very sophisticated, and disguised to look like legitimate investment offers. In reality, the real money comes from new investors, and not from investor profits. Investors themselves run a significant risk of arrest and fines by authorities for participation in the offer.