In 2006, QXQ opened their doors to finance home mortgages. One of the easiest loans for potential homeowners to obtain was called a stated income loan. These loans were money in the bank to QXQ because people just had to fill in the forms with their current salary, there was little documentation required, and everybody won. The buyers got their house and QXQ got paid. Andrew works for QXQ as an investor. He only takes clients who have at least $500,000 to invest. He has been touting this new hedge fund that he himself has invested in. It is promising 20 percent returns every year. He just signed up the Jones family. If this scenario turns out to be a Ponzi scheme, what will likely happen to the Jones's money?

Question

Quizplus · Accepted Answer

In a Ponzi scheme, new investors' money is typically used to pay returns to earlier investors rather than being invested in legitimate business activities, creating the illusion of a profitable business.

In 2006, QXQ Opened Their Doors to Finance Home Mortgages