A Ponzi scheme is a fraudulent investment operation in which returns promised to existing investors are paid using capital contributed by new investors — rather than from genuine profits generated through legitimate business or investment activity. The scheme requires a constant inflow of new investor money to sustain itself, creating an inherently unstable structure that inevitably collapses when new recruitment slows, large redemptions occur, or the fraud is exposed. The term originates from Charles Ponzi, who orchestrated a famous fraud in 1920 in the United States. The world's largest known Ponzi scheme was Bernie Madoff's operation — which defrauded thousands of investors of approximately USD 65 billion. In India, SEBI and the Police have taken enforcement action against numerous Ponzi schemes — including the Saradha Group chit fund fraud in West Bengal (2013), Rose Valley Holdings, PACL/Pearls, and various cryptocurrency and algorithmic trading Ponzi operations that have proliferated with digital platforms. For Indian investors, warning signs of Ponzi schemes include: guaranteed high returns (10% to 30% monthly) regardless of market conditions, pressure to recruit new investors, complex or opaque investment strategies, difficulty in withdrawing funds, and unregistered operators. SEBI's SCORES complaint portal allows investors to report suspected Ponzi and unregistered collective investment schemes, and SEBI regularly publishes investor alerts about fraudulent schemes targeting Indian retail investors.
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