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Understanding the definition and red flags of a Ponzi scheme

Many people in Louisiana might be under the impression that a white collar crime isn't as serious as other types of criminal acts that involve narcotics, violence and theft. However, a white collar crime is treated harshly by law enforcement as they might end up involving a larger number of entities with far more people being negatively affected by its aftermath. One such act that has garnered greater news coverage recently and harmed a vast number of people is a Ponzi scheme.

When there is fraud committed with the returns to investors being funded by money from other investors rather than via an actual product or service, it is known as a Ponzi scheme. The allure of this type of investment is that those who are running it make promises to investors that there will be substantial returns and limited to nonexistent risk. The goal is to continuously find new investors to continue to fund the project and keep earlier investors from losing money. While investors might be receiving returns on their investment and all might seem well, the reality is that the payments they receive hinge on the repeated discovery of new investors.

Since there's little to no legitimate income to pay investors who wish to cash out, this is often the beginning of the end of the scheme. Signs of a Ponzi scheme include promises of high yield with low ris,; a consistency of returns that flies in the face of reality, investments that are not registered with the government authorities, sellers who don't have a license, shady behaviors and secretiveness, problems receiving paperwork regarding the investment and trouble receiving payouts on time or in their expected amounts.

When facing charges for fraud for taking part in a Ponzi scheme, the first step should be to discuss the matter with a legal professional who is experienced in defending clients who are charged with various forms of fraud. Those who are facing a federal investigation for possible involvement with a Ponzi scheme must deal with allegations of fraud and the accompanying legal sanctions. It's possible they weren't even aware that what they were doing was against the law. Some might have gotten involved unwittingly and found themselves unable to get out. Others could have made a mistake and committed a white collar crime that has severe consequences.

Source: SEC.gov, "Ponzi Schemes," accessed on Jan. 16, 2015

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