A “Ponzi scheme”, named after Charles Ponzi, the notorious fraudster from the 1920’s, who reportedly bilked New England investors by promising a 40% return in 90 days. This fact pattern is similar to many modern day scams heralded in today’s newspaper, such as the Madoff case. The Ponzi scheme is unsustainable and is usually discovered when new victim investments cannot keep pace with the returns paid to previously victimized investors. Periods of declining markets will often uncover the wrongdoing when investors demands for withdrawals deplete the remaining funds.
Many Ponzi schemes are able to grow because the wrongdoer is associated with or otherwise connected to a reputable brokerage firm, insurance company, accounting firm, or law firm which either fails to properly supervise its agent, fails to question red flags, or fails to comply with its own internal or professional guidelines on how it must monitor its agents.
In many instances, Ponzi schemes target those investors who are least able to withstand the losses. The victims tend to be unsophisticated investors who are many times referred by family members, close friends, or members of a group with strong affiliation.
Common characteristics or tactics employed by the Ponzi scheme fraudster:
- Unexpected Cold Calls, Letters or Emails;
- Promise of Short Term Guaranteed Results;
- Uncommon Business Model or Strategy;
- Limited Availability for Investors; and
- Investors Concentrated by Group or Association.
Ponzi schemes are also frequently affinity frauds where the wrongdoer is able to convince a large group of connected investors to invest in a fraudulent investment program because they all belong to the same religious organization or the same ethnic background.
Types of investment opportunities offered in Ponzi schemes:
- Above-Market Interest Rate Returns;
- Bogus Managed Accounts;
- Business Franchises;
- Unregistered Securities;
- Promissory Notes; and
- Limited Partnerships.
How to protect yourself from falling prey to Ponzi schemes:
- Ask What Licenses Advisor Holds;
- Check Advisors Background with Regulators;
- Beware of Unrealistic Guarantees or Promises;
- Limit Amount Invested in Any Single Investment (Diversify);
- Verify Details of Investment with Custodian of Funds; and
- Investment Audited by Nationally Recognized Firm.
Con artists are only limited by their imagination, and different schemes continue to be uncovered on a regular basis. Silver Law Group frequently represents victims on a contingency fee basis. We have the experience and knowledge to pursue all responsible parties.The Basics – How to Spot a Ponzi Scheme
You have worked hard for your money. Now you are ready to invest it wisely and reap the financial rewards of your labor and sacrifices. Beware, not all investments have your best interests at heart. There are many con artists out there scheming to get your hard earned money through a variety of scams and well-crafted Ponzi schemes. Sometimes even the most cautious investors can be victims. Often the elderly are at risk to these investment schemes featuring high income or high yield investments. Education is not only power when dealing with scammers but it is also safety and reassurance. There is help for those who do fall prey to Ponzi schemes and other fraudulent investments.
Ponzi schemes offer an investor high financial returns or dividends utilizing fraudulent investments that ultimately leave the investors with no money or returns. In the beginning, the instigator of the scheme pays dividends to investors with the money from subsequent investors. When no more investors are contributing to the investment, the dividends will stop, and the con artist will suddenly disappear with all the proceeds leaving the investors without their money.
Ponzi schemes are not new, and they have been around since the early 20th century when its namesake, Charles Ponzi of Boston created a scheme that promised investors a hefty return on their investment in postal coupons. In his scheme, Ponzi was unable to pay investors who were looking for their guaranteed return.
We can fast forward to the 21st century and still find fraudulent behavior and schemes happening today. One of the most notorious Ponzi scammers, Bernie Madoff was arrested in 2008 for orchestrating an enormous Ponzi scheme that affected many people. Currently, he is serving a 150-year sentence for his crime. Each year the Securities[EB1] and Exchange Commission (SEC) investigates an array of Ponzi schemes to protect the public and investors.
In these uncertain economic times, many people are seeking investment advice and looking for investments that can make their money grow and secure their financial future. Investors should be aware of the red flags and warning signs of a Ponzi scheme, which respected organizations, such as the SEC and others say might include the following:
- Any investment that is not registered with the SEC or state securities regulators as stated by the Investment Advisers Act of 1940
- Investments involving unlicensed individuals (sellers) or unregistered companies
- A guaranteed investment return with limited or no risk
- An investment with consistent returns in spite of market trends
- Investments that do not ask for certain investor qualifications (Some investment opportunities desire you to be an accredited investor )
- Investments that are difficult to understand with a complex business strategy
- Documents using vague terminology, such as “offshore or high-yield” investments
- Errors in paperwork and account statements
- Lack of key information in writing
- Payments that are difficult to receive
If you feel uneasy about an investment opportunity or have become a victim of a Ponzi scheme, contact the securities lawyers at Silver Law Group, a national Securities Arbitration & Investment Fraud Law firm. Their lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to Ponzi schemes, security and investment fraud or stockbroker misconduct. The securities lawyers at Silver Law Group work hard to recoup your money from the bad guys. Contact us at (800) 975-4345.