If Your Broker, Brokerage Firm, Financial Advisor or Investment Consultant Engaged In Ponzi Scheme, Pyramid Scheme or Other Fraudulent Investment Scheme, You May Have A Fraud Claim Against Your Broker.
-Report A Ponzi, Pyramid or Other Fraudulent Scheme-
What is A Ponzi Scheme?
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. A Ponzi scheme is fraudulent investment scheme in which money contributed by later investors generates artificially high dividends for the original investors, creating an illusion of profitability, thus attracting new investors and investments. Money from the new investors is used directly to repay or pay interest to earlier investors, without any operation or revenue-producing activity other than the continual raising of new funds.
Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out. The Ponzi scheme takes its name from Charles Ponzi, who in the late 1920s was convicted for fraudulent schemes he conducted in Boston.
According to the Securities and Exchange Commission (“SEC”), many Ponzi schemes share common characteristics and warning signs, including:
- High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
- Overly consistent returns. Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.
- Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
- Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
- Secretive and/or complex strategies. Avoiding investments you don’t understand or for which you can’t get complete information is a good rule of thumb.
- Issues with paperwork. Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Also, 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 your investment. Keep in mind that Ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.
What is A Pyramid Scheme?
A pyramid scheme is a form of fraud similar to a Ponzi scheme, relying on an illusion of an extremely high rate of return based on attracting new investors and investments. In the classic pyramid scheme, participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.
But despite their claims to have legitimate investments, products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors. But eventually the pyramid will collapse. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money.
Why These Fraudulent Schemes Inevitably Fail?
In both Ponzi schemes and pyramid schemes, an increasing number of new investors are required to keep the schemes afloat. Unfortunately, the supply of subsequent investors is eventually exhausted and the fraudulent scheme collapses, with the later investors typically losing all of the money that they invested, and only the earliest investors, if any at all, having recovered their investments. Ponzi schemes and pyramid schemes typically always end in disaster.
If you believe that your broker has invested your assets in a Ponzi scheme, pyramid scheme or other fraudulent investment scheme, your broker may be liable to you for a fraud claim.
-Recover Ponzi, Pyramid And Other Fraudulent Scheme Losses-
If Your Broker, Brokerage Firm, Financial Advisor or Investment Consultant Engaged In A Ponzi Scheme, Pyramid Scheme or Other Fraudulent Investment Scheme, Contact A Securities Arbitration Lawyer.
-Request A Free Review By A Securities & Investment Attorney-
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