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What is a Ponzi Scheme?

A Ponzi scheme is a form of “robbing Peter to pay Paul,” on a grand scale. Named for a 1921 investment fraud perpetrated by a man named Charles Ponzi, it promises high returns and little risk. In actuality, this is achieved only for early investors, who are paid from the money that later investors provided; the person running the scheme typically takes money out of it for personal use. Ponzi schemes can go on for many years but inevitably collapse when too many investors ask for their money back.

Ponzi schemes are violations of both securities law and federal criminal law. But since they also offer an opportunity to get rich quickly—for the ringleader—they remain a persistent form of investment fraud. If you’re a victim of a Ponzi scheme, don’t wait to contact Silver Law to discuss how we can help.

Detecting a Ponzi Scheme

Ponzi schemes can seem quite reputable. The largest Ponzi scheme in U.S. history was run by Bernard Madoff, who headed a financial firm for decades and maintained a legitimate trading arm alongside the scheme. In fact, the most successful Ponzi schemes often have a connection to reputable financial businesses or a kernel of truth to its investment philosophy.

However, Ponzi schemes typically offer an investment with high returns but little risk. That’s an unusual combination in the financial world, where gains are set to be commensurate with risk. Perpetrators of Ponzi schemes often say they’re merely picking investments well, but in reality, Ponzi schemers may not make investments at all. Rather, they divert the investors’ money for personal use, paying investors who cash out using the money from other investors. When the new investment stops—often due to a market downturn or the perpetrator getting caught—the scheme collapses, and the investors are left with nothing.

Other red flags suggesting a Ponzi scheme include:

  • Claims that the investment is only available to a select clientele or for a limited time
  • Extremely consistent returns
  • Investments, firms, and individuals who are not regulated by the U.S. government
  • Seller never provides detailed information about its strategy
  • Seller discourages investors from cashing out
  • Seller approaches buyers out of the blue
  • Seller uses its status in a subculture (a particular ethnic, racial, religious, age, or other community) to generate trust
  • Unregistered securities
  • Unregistered brokers
Ponzi Schemes can Involve Different Investments
  • Securities
  • Bonds
  • Reg. D offerings
  • Private placements
  • Real Estate
  • Cryptocurrencies
  • Trading algorithms
  • Commodities
  • Precious metals
Ponzi Scheme Attorneys

If you’re a victim of a Ponzi scheme, you need a knowledgeable advocate to protect your rights. It can take many years to unwind the ill-gotten money from places where the Ponzi schemer stashed it. Later investors may be competing for very small slices of that pie. Early investors who were lucky enough to cash out before the collapse may even be sued for the return of their profits.

Silver Law understands Ponzi scheme cases because it has handled many of them. Lead attorney Scott Silver, a career securities attorney, is frequently retained to handle lawsuits for the trustees or SEC receivers who help unwind Ponzi schemes, winning money to help make victims whole. If you’re in this situation, we can protect your rights. Contact us today for a free consultation at (800) 975-4345 or send us a message online.

Client Reviews
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“My in-laws lost their retirement funds to a dishonest broker. Silver Law Group and Scott Silver aggressively pursued their losses until he got their money back.” Ben M.
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“I foolishly gave my money to a con artist promising me a great return on my money. Scott Silver zealously handled the matter, recovering my losses.” Darren S.
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“I almost lost a lifetime of earnings after trusting the wrong person. Silver Law Group guided me through the arbitration process and a mediation, always fully prepared and committed to my case.” Scott T.