A brief intro...

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation.

In order to attract potential investors, extraordinary returns are promised on the investment, and vague verbal constructions such as "hedge futures trading," "high-yield investment programs" or "offshore investment" are  used in order to take advantage of a lack of investor knowledge or competence.

Initially the promoter will pay out high returns to attract more investors, and to lure current investors into putting in additional money. Soon, attracted by the high returns, other investors begin to participate, leading to a cascade effect which leads the scheme to an inevitable collapse since the earnings, if any, are sooner or later going to be less than the payments to investors, or in other cases because, as more investors become involved, the likelihood of the scheme coming to the attention of authorities increases and the scheme is interrupted by legal authorities before it collapses or because a Ponzi scheme is suspected or because the promoter is selling unregistered securities.

 The following graph is an interesting and clear rappresentation of how the scheme actually works.