Question

Shane operates an investment firm that promises unusually high returns to its investors. However, rather than investing the money legitimately, he simply funnels it to his personal accounts. He uses money from new investors to pay returns to older investors. Which crime best describes Shane's actions?

A) Ponzi scheme
B) Pyramid scheme
C) Insider trading
D) Racketeering

Answer 1

Shane's action of using funds from new investors to pay returns to older investors without legitimate business earnings is a classic example of a Ponzi scheme.

Step-by-step explanation:

The crime that best describes Shane's actions is a Ponzi scheme. A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds. Shane's method of using money from new investors to pay returns to older investors is characteristic of a Ponzi scheme, named after Charles Ponzi who became notorious for using such tactics in the early 1920s.