Recently, a student came into a faculty member's office and handed the faculty member a card he had found in the business school building advertising a company called 12 Daily Pro. He said someone had been distributing these cards around the building, encouraging students to invest in a "business opportunity." It suggested that you could invest $6 to $6,000 and earn a 44 percent return in 12 days. The card called this program a "new economic paradigm." The faculty member decided this had to be a Ponzi-type scheme and sent an e-mail to all students in the school reminding them that such schemes are illegal, unethical, and immoral. The next day a local TV channel carried the story, and the following day the electronic payment service for the scheme froze all the company's accounts and essentially shut them down. A few weeks later, the SEC filed a securities fraud charge against the head of the company and against the company itself, calling it a Ponzi scheme.
1. What do you think made the faculty member believe this was a Ponzi-type scheme?
2. What is the annual return the scheme operators were promising on investments in this scheme?
3. Why do you think this scheme, which had been operating for over a month, attracted so many investors?