What You Need to Know About Ponzi Schemes as an Investor

By Your Health Magazine Contributor

Your Health Magazine Contributor

More Financial Wellness Articles

What You Need to Know About Ponzi Schemes as an Investor

At first glance, a Ponzi scheme appears to be a fantastic opportunity. The person in charge assures you of a guaranteed return on your investment. They might even show you fake documents to prove it is a legitimate business. But the truth is, there is no real business to speak of, and they are simply using new investors’ money to pay off the old ones. 

“Fraudsters lean hard on trust and pressure. They make you think everyone else is cashing in, so you feel like you will lose out if you do not jump in fast,” says Ponzi scheme lawyer Scott Silver of Securities Fraud Attorneys.

If you want to know how these schemes really work and what you should look out for, keep reading.

How a Ponzi Scheme Operates 

A Ponzi scheme is basically just taking money from new investors and using it to pay off old ones. It looks like people are making real profits from their investments. The truth is, they are just making profits from other people. As long as they have fresh money coming in, they can keep it up. The minute they stop receiving fresh money, it is over. 

Ponzi schemes live off trust and secrecy. Most people who get caught in a Ponzi scheme do not even know what is happening to their money. The person in charge does everything behind closed doors. If someone is offering you an investment that is “guaranteed” or that there is “no risk” involved, then you should be very wary. In the real world, no one can promise you that you can make money with no risk involved.

Warning Signs 

If you know what to look for, it is not too difficult to spot a Ponzi scheme. There are always promises of making money, even if everything else is losing money in the market. Also, there are mentions of a special investment strategy, a “club” that you are a part of, which nobody else knows anything about. 

You will soon realize that the scammers are always in a hurry for you to invest your money with them. They will tell you that there are only a few spots available or that the deal is about to expire, so you need to hurry up and sign on the dotted line. They will not want you to talk to anyone, like a financial advisor or accountant, because those people will just shoot holes in their argument. 

Legal Consequences for Getting Involved

It is not just your money that you will lose in a Ponzi scheme, but also your freedom, especially if you are not the one behind the whole operation. There are a number of federal laws, especially the Securities Act and the Securities Exchange Act, that prosecute anyone involved in promoting these types of investment scams. This does not just mean the people behind the Ponzi scheme, but anyone who helps recruit people for these scams or collects their profits.

If you are found guilty, especially with intent under Ponzi scheme law, you are looking at a long prison term, a hefty fine, and a lifetime ban from certain industries. This crime, and securities fraud, are on the same level as insider trading and market manipulation in the court system.

Working with a Lawyer 

When a Ponzi scheme is exposed, you need an attorney on your side, whether you are a victim, accused of being part of the scheme, or just an investor wanting to know what happens next. A good Ponzi scheme lawyer will walk you through tough questions from the regulators, work to get you your money back, and make sure you do not become liable for someone else’s actions.

You do not want just any attorney working for you in this case. You want an attorney with experience in Ponzi scheme law, investment fraud cases, asset tracing, and working with government investigators. They will know how to follow the money, understand the real meaning of the subpoenas they receive, and work with forensic accountants to get the complete picture. They will know exactly how to get you the best results in your case.