Which of the following statements is true regarding a Ponzi scheme?

A Ponzi scheme is a type of investment scam that is characterized by the promise of high returns with little risk to investors. The correct statement highlights that a Ponzi scheme is disguised as an investment opportunity, which is how it initially attracts funds from new investors. Instead of generating legitimate profits from investments, the scheme uses the money from new participants to pay returns to earlier investors, creating an illusion of profitability and sustainability.

This facade allows the scheme to continue operating as long as new investments are coming in, masking its fraudulent nature. The scheme ultimately collapses when the operator can no longer attract enough new investors to pay returns to previous ones, or when too many investors attempt to cash out their investments simultaneously.

The other statements provide descriptions that do not accurately reflect the nature of a Ponzi scheme. While recruiting can occur to sustain the flow of new money, it is not the primary focus of operation as indicated. Participants in a Ponzi scheme generally do not see true returns from genuine investment growth; they are merely receiving payments sourced from new participants. Furthermore, Ponzi schemes are illegal and are not recognized as legitimate investment opportunities under any regulatory framework.