Experienced Criminal Defense Attorneys

What is a Ponzi scheme? 

On Behalf of | Sep 27, 2023 | CRIMINAL DEFENSE - White Collar Crimes

A Ponzi scheme is a type of financial scheme that can be traced back to the 1920s. Essentially, it is a means of fraud, where investors lose their money to the scheme. Since it is now illegal to run a Ponzi scheme, it’s important for people to understand exactly how it works.

Essentially, a Ponzi scheme is based on a fictional investment opportunity. There may not actually be any opportunity to invest or any company with physical assets backing up those investments.

But once the scheme has attracted a few investors, they are promised very high returns. These returns are paid out from subsequent investors. To those who invested first, it looks like the scheme was highly successful. This attracts more investors and the scheme can begin to build momentum.

How it falls apart

But the problem is that the actual investments aren’t increasing in value at all. Money is just being shifted from later investors over to early investors. Eventually, it’s going to fall apart because the scheme is going to run out of funds to pay future investors with the returns that they were promised. That is when the later investors will discover that all of the money they put into the scheme is gone, having been paid out to others long ago, and there is no way to recover it.

What options does someone have?

Those who are accused of high-level types of financial fraud, like running a Ponzi scheme, could be facing very serious ramifications. These may go far beyond having to pay back the money that was fraudulently obtained. There could be fines and even incarceration for a number of years. That’s why it’s so important for those who have been accused to know about the legal defense options they have to focus on their future.