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Federal officials remain committed to crackdown on Ponzi schemes – II

Jul 27, 2016 | Federal Crimes

In our last post, we started discussing how federal law enforcement officials remain committed to cracking down on Ponzi schemes, and how this is problematic given that law enforcement mandates of this sort frequently result in otherwise innocent people being swept up in dragnets and suffering harm to their professional reputation in the process.

We also began exploring some basic background information on Ponzi schemes in order to help people better understand how they are viewed in the eyes of the law, what typically serves as red flags, and why they remain such an enticing target for the federal government. We’ll continue this discussion in today’s post.

Ponzi schemes v. pyramid schemes

To recap, a Ponzi scheme is a type of investment fraud in which the funds of new investors are used to pay existing investors creating the illusion that the investment is generating returns. This, in turn, serves to keep existing investors happy and attracts new capital.

It’s not uncommon for people to have trouble differentiating a Ponzi scheme from a pyramid scheme given that they both revolve around the concept of using money supplied by new investors to pay earlier investors and the complete absence of actual profits.

Under a pyramid scheme, the “hook” is essentially that an investor can earn significant profits by making either a one-time payment or paying an ongoing participation fee, and enlisting others to become distributors of a product that may — or may not — exist. When more distributors can’t be found, pyramid schemes typically collapse fairly quickly.

Above all else, it’s important to understand that even though it may be difficult to differentiate between a pyramid scheme and a Ponzi scheme, both are illegal and therefore on the radar of federal law enforcement officials.

Ponzi schemes and red flags

All of this naturally raises questions as to what factors may cause federal law enforcement officials to launch an investigation into a potential Ponzi scheme.

According to the Securities and Exchange Commission, some of the so-called red flags for Ponzi schemes include:

  • Investments offering high returns with virtually no risk  
  • Investments that have not been registered with the SEC
  • Investments being run by unregistered firms or unlicensed sellers
  • Investments continuing to produce positive returns regardless of market conditions
  • Investments providing little in the way of paperwork or information to investors
  • Investments that suddenly stop making payments or refuse to return money

Consider speaking with a skilled legal professional who can protect your rights, your future and your hard-earned assets if you are under investigation or have been charged with any sort of investment fraud.


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