A Ponzi scheme is typically characterized by what type of activity?

A Ponzi scheme is characterized primarily by the practice of using new investors' money to pay off previous investors. This method creates an illusion of profits and sustainability, as the influx of new capital serves to give the appearance that the business is generating returns from legitimate investments. In reality, no actual profit-generating investment is occurring; the scheme relies entirely on the continuous recruitment of new investors.

The mechanism of a Ponzi scheme is unsustainable in the long term because it depends on an ever-growing base of new investments to maintain payouts to earlier investors. Eventually, when the flow of new investors slows down, the scheme collapses, leaving many investors with significant losses.

Promising low returns on investments could be a legitimate business practice or part of a different investment strategy, while offering guaranteed profits with no risks is inherently misleading, as all investments carry some level of risk. Engaging in legitimate business practices is not characteristic of a Ponzi scheme, which is fundamentally fraudulent in nature.