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

A Ponzi scheme is an illegal type of investment fraud in which money from new investors is used to pay off earlier investors, rather than being invested as promised. It works by offering short-term returns that are too good to be true, with no real underlying profits being generated. Legitimate investments, on the other hand, involve buying assets such as stocks, bonds, and mutual funds that generate profits through the sale of the asset. A Ponzi scheme will typically require investors to recruit new investors in order to keep the scheme going and receive payments. It can be identified by looking for red flags such as a guaranteed return on investments, pressure to recruit more investors, or an inability to provide detailed information about the investment. In Washington, it is illegal to offer or solicit investments that are considered to be fraudulent, or are likely to defraud investors. The rules regarding investment fraud are in place to protect consumers from being taken advantage of in financial matters. It is important to be aware of these rules and know the difference between a legitimate investment and a Ponzi scheme before investing.

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

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