Deason et al (2015) defined Ponzi scheme as a cash investment in an organization and the Ponzi operators never invest the money collected in a legal investment that would generate income. Thus, Ponzi scheme is a fake investment plan where investors are encouraged to invest in an organization which actually does not exist. Ponzi scheme operators call up unsuspecting person giving them hope that they would get rich more quickly by investing their money in an investment portfolio or in an entity. The contribution can take various forms, for instance, the saving schemes, retirement and pension funds, trusts, protection covers and so on. Nevertheless, in reality, this cash is never invested but end up as a gain for the scammers. Deason et al (2015) further argued that the concept of Ponzi scheme would continue to survive as long as the schemers have the capacity to draw in new investors to contribute to the scheme.
Mike Moffatt (2017) interpreted Ponzi scheme as a ploy which is formulated to tempt the public to invest their money into an unethical investment. The approach that a fraudster uses in Ponzi scheme is that the latter provides a high rate of return in a very short lifespan. Typically, they demand a bigger and significant investment, as a result of the vow done for a hugely high financial return or dividend. Therefore, it can be said that Ponzi scheme is essentially a scam investment.
Lewis (2012) defined Ponzi scheme in accounting language as business ventures that have only been bankrupt since the fundamental day of operation. In agreement with Clark and McGrath (2009), many people consider Ponzi schemes very much alike to pyramid schemes, but they are not exactly similar. In the case of a pyramid scheme, victims are encouraged to recruit new traders to market products that are actually not commercial. On the contrary, (Trahan et al 2005) claimed that for a Ponzi scheme, new investors should keep on investing and as well the existing investors should sustain their contributions. However, it is assumed that the scheme would crash if investors cease to join in the plan or the existing investors wish to reclaim their money.
Caputo (2012) declared that Ponzi scheme compromises of three elements and these elements are described below:
1. The guarantee of a higher rate of return in order to encourage an individual to contribute to the scheme.
2. The requirement of continuously attract new investors.
3. The absence of any essential legal product, service or resource sufficient to keep the promised payouts.