As one of the sibling responses points out, it's not a Ponzi scheme.
But it's certainly a completely useless advertising medium, from my limited experience with them for a few months. We spent hundreds of dollars of advertising on an iPhone app, and I don't think even moved the needle once.
I remember in university we could reserve a small budget (25-50$ to advertise our events for software students (SOEN/CS) and spend it on Facebook because of the amazing targeting. We could ask that the ads only be send to people from our school who had their majors put in and hadn't yet graduated. That's perfect targeting and it actually worked pretty well. Better than papering the university walls with flyers that's for sure; no one ever read those.
Yes. Most events would have 1-2 (out of maybe 50 or so that showed up) that were new and we'd ask them how they heard about it. Most was from word of mouth, a small amount from Facebook and I don't remember anyone saying it was because of a flyer.
Though one thing I don't remember asking was whether "Facebook" meant Facebook ads or the other strategy for promotion on Facebook: create an event, invite everyone and tell all those people to invite everyone else.
If you spend $25 to advertise on Facebook and get just one conversion (new event attendee in your case) that wouldn't really be effective advertising at all unless you would be making at least a $25 profit from that conversion (not including the advertising expense). I realize that in your case you aren't out to make a profit, but you can see how from a business standpoint advertising on Facebook makes no sense in this scenario for most products.
But it's certainly a completely useless advertising medium, from my limited experience with them for a few months. We spent hundreds of dollars of advertising on an iPhone app, and I don't think even moved the needle once.