Pyramid scheme

Updated: Aug 20, 2021

A financial scheme in which investors are offered a high rate of return, but this is paid out of investments made by a large number of newly joined members, attracted by these high rates, rather than from real production or investment activities. Such schemes are inherently fraudulent; they can pay the promised return only as long as total membership rises fast enough, and once new entry slows down or falls they are bound to default on their promises.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.