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Warning signs of a Ponzi scheme

On Behalf of | Apr 29, 2024 | Criminal Defense

Ponzi schemes are investment scams that promise high returns with little or no risk to investors. They use funds from new investors to pay returns, rather than by generating legitimate profits. Eventually, the scheme collapses when it becomes impossible to recruit enough new people to keep the scam going.

Recognizing the warning signs of a Ponzi scheme can help avoid losing money and facing criminal charges for participating in illegal activities.

High, consistent returns

One of the key warning signs of a Ponzi scheme is the promise of unusually high or consistently high returns. These returns are often much higher than those offered by legitimate investments. Investors should be wary of any investment opportunity that guarantees making a lot of money without risking much up front.

Unregistered investments

Another red flag is a lack of proper registration with relevant regulatory authorities. Investors can search the Securities and Exchange Commission website to determine if an investment opportunity is registered.

Lack of transparency

Ponzi schemes often lack transparency about the investment strategy or the generation of returns. Investors may find it difficult to get clear and verifiable information about the investment, its operations and the individuals overseeing it.

Difficulty withdrawing funds

Investors in a Ponzi scheme may have trouble withdrawing their funds or receiving promised returns. However, funds may be readily available early on, to create a false sense of trust in the company.

Individuals who participate in a Ponzi scheme not only stand to lose money but can also face serious criminal charges. These charges may include securities fraud, wire fraud and conspiracy to commit fraud. Prosecutors may also pursue charges of money laundering if they can prove that the individual knowingly engaged in financial transactions involving proceeds from the scheme.