In each round, investors are paid interest from the principal deposits of later investors.

Instead, Mr. Ponzi simply paid early investors their returns with the money he received from later investors.

The interest is not from investments but from later investors.

In fact, the money comes from later investors drawn in by offers of high yields.

Early investors are paid returns with the investment money received from the later investors.

The later investors do not receive dividends and lose their initial investment.

In reality, Ponzi was paying early investors using the investments of later investors.

The authorities said they suspect that much of what was taken from later investors went to pay back earlier investors in a pyramid scheme.

But as in all pyramid schemes, the first investors were simply being paid by money from the later investors.

Specifically, authorities claimed Hsu had not engaged in any legitimate business activity, but instead was using funds from later investors to pay returns to earlier ones.