What is the difference between a Ponzi scheme and a legitimate investment?

A Ponzi scheme is a fraudulent investment operation where money from new investors is used to pay any supposed profits to earlier investors. It is named for Charles Ponzi, an Italian immigrant who ran a postal reply coupon fraud in the U.S. before the Great Depression. In Virginia, investment fraud is a serious offense. In contrast to a Ponzi scheme, a legitimate investment is an expenditure in which an investor has a reasonable expectation of receiving financial return or gain on the money that has been invested. Legitimate investments also must be registered with the appropriate state or federal agencies and must be overseen or regulated by the relevant State or Federal Government. Legitimate investments also include disclosures to potential investors, such as information on the risk, fees, and benefits of an investment. Ultimately, the main difference between a Ponzi scheme and a legitimate investment is that a Ponzi scheme is an illegal and fraudulent operation, while a legitimate investment is legal, properly governed, and enables investors to make informed decisions. Furthermore, investments in a Ponzi scheme often never materialize, and the scheme collapses when the fraudsters are no longer able to pay investors with the money of subsequent investors.

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What is the difference between a Ponzi scheme and a legitimate investment?

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