Have You Been the Victim of a Ponzi Scheme?
A Ponzi scheme is a fraudulent investment program where the perpetrator uses newer investors’ money to pay alleged “investment returns” to earlier investors. A typical Ponzi scheme lures investors with promises of above-market rates of return. The use of newer investors’ money to make alleged investment return payments to earlier investors gives the fraudulent appearance of a properly functioning and successfully performing investment strategy. A Ponzi scheme can continue as long as the fraudster is able to get new investors to invest into the scheme.
What to Look for in a Ponzi Scheme
Many Ponzi schemes have common characteristics. Some of the red flags of a potential Ponzi scheme include the following:
- Above-market returns with supposedly little or no risk. Every investment carries some degree of risk, and the risk/reward paradigm dictates that higher yielding investments typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
- Significant rate of return. Even where the investment is represented to be risky, the promised investment returns often are much greater than other risky investments.
- Overly consistent returns. Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions. (Many Bernie Madoff investors failed to recognize or ignored this red flag.)
- Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. While some unregistered investment are legitimate, registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
- Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Many Ponzi schemes involve unlicensed individuals or unregistered firms.
- Secretive, complex strategies. Avoid investments if you don’t understand them or if the seller refuses to provide full, intelligible disclosures about the investment strategy.
- Sloppy or inaccurate paperwork. Account statement errors may be a sign that funds are not being invested as promised.
- Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying in the investment.
- Representations of exclusivity. that not all investors have access to the investment. (Bernie Madoff used this technique to great success.)
Call a Los Angeles Fraud Attorney Today
Many very savvy investors have been taken advantage of by unscrupulous Ponzi scheme promoters. Two of the most notorious and largest Ponzi schemes were Bernie Madoff and Allen Stanford, each of which involved the theft of billions of dollars from unsuspecting investors. If you made an investment only to find out that it was a Ponzi scheme, or if you believe you have invested in one, you should contact an experienced Los Angeles fraud attorney today for a free consultation to discuss your legal rights.