What best describes a Ponzi scheme?

A Ponzi scheme is best described as a business structure that sells services primarily through revenue generated from recruiting new members rather than from legitimate business activities or investments. The defining characteristic of a Ponzi scheme is that it pays returns to earlier investors using the capital raised from newer investors, rather than from profit earned by the operation of a legitimate business.

In this fraudulent model, the scheme relies on a continuous influx of new participants to keep the operation running, as the returns promised are often not sustainable through actual business operations. These schemes eventually collapse when it becomes difficult to recruit enough new investors to pay the returns to earlier backers, leading to significant financial losses for those involved.

The other options do not accurately reflect the nature of Ponzi schemes. They suggest legitimate investment strategies or cooperative models, which contradict the deceptive and unsustainable practices inherent to a Ponzi scheme.