Posts made in July, 2017

Understanding the Signs of Ponzi Scheme

Posted by on Jul 16, 2017 in Investment Fraud | 0 comments

Charles Ponzi was a charismatic Italian immigrant who, from 1919 to 1920, was able to sweet-talk thousands of Americans into shelling out millions of dollars to buy postage stamps using international reply coupons. Charles promised high returns on investment to lure potential investors, explaining to them that they can purchase postage at European currencies’ lower fixed rates and then redeem these in U.S dollars at higher values. The real issue, though, was that Ponzi diverted investors’ money to make payments to earlier investors and himself. When the time came when he could no longer rustle up enough fresh investments to keep up with the money going out the door, his scheme was discovered, landing him in jail.

Now known as the Ponzi scheme, this fraudulent investment operation involves an individual or an organization luring people to invest in a non-existent business with the promise of high returns. The fact, however, is that scammers pay returns to investors using their own money or money paid in by subsequent investors.  Since there is no legitimate business, there are also no legitimate earnings, thus Ponzi schemes require a steady flow of money from new investors to continue. If it becomes difficult to recruit new investors or when a large number of investors ask to cash out, it will mean the scheme’s collapse.

According to an investment fraud lawyer, though Ponzi schemes are quite difficult to spot, there are signs that may indicate these. These signs or red flags include:

  • High returns with no risk;
  • Unusual consistency in returns;
  • No registrations or licenses;
  • Secrets and unnecessary complexity;
  • Paperwork problems; and,
  • Trouble with payments.

The funds that a Ponzi scheme generates are usually used to enrich the manager of the scheme. Thus, by the time a Ponzi scheme collapses or when investors discover the scheme, it can be difficult or impossible for them to get their money back.


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