CFE – Financial Transactions and Fraud Schemes — Question 10

Which of the following is NOT a distinguishing feature of a Ponzi scheme?

Answer options

• A. Participants attempt to recruit as many new members as possible.
• B. Previous investors are paid with money from new members.
• C. Participants believe that they are making a legitimate investment.
• D. Promoters of Ponzi schemes engage in little or no valid commerce or investments.

Correct answer: B

Explanation

The correct answer is B because, in a Ponzi scheme, earlier investors are indeed paid using the funds from new members, making this a core characteristic of such schemes. The other options correctly describe typical behaviors and beliefs associated with Ponzi schemes, such as recruitment efforts, perceived legitimacy, and lack of genuine commerce.