A Ponzi scheme is a type of investment fraud that promises high returns with little risk to investors. In this scheme, returns are paid to earlier investors using the capital from newer investors, rather than from profit earned by the operation of a legitimate business. This creates the illusion of a profitable enterprise, attracting more participants. Eventually, the scheme collapses when it becomes difficult to recruit new investors or when a large number of existing investors try to cash out their returns. The name comes from Charles Ponzi, who became infamous for using this method in the early 20th century.