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Ponzi schemes are investigated by the SEC

by | May 5, 2016 | Firm News |


Residents in Louisiana may have heard of a scheme referred to as a Ponzi; however, they may not be familiar with exactly what this term entails. A Ponzi scheme describes a fraudulent investment network in which the funds contributed to the scheme by new investors are used to pay purported returns to previous investors.

Commonly, Ponzi schemes operate by promising a very high rate of return for investors’ money with a very low level of risk. The name Ponzi scheme is derived from a man named Charles Ponzi who, in the 1920s, ran a postage stamp scheme, promising investors a 50% return in only a 90 day period.

It is common for Ponzi schemes to dissolve either when many of the investors ask to cash out their investment, or when the scheme’s operator can no longer recruit new investors. In order to operate, Ponzi schemes depend on a large amount of money continually flowing through the operation. Commonly, a person operating a Ponzi scheme will interact directly with those persons who are investing in the operation.

Though similar to a pyramid scheme, Ponzi schemes differ in their execution. Typically, pyramid schemes revolve around the distribution of an alleged product, which may not be genuine, and the operator of a pyramid scheme entices investors by claiming they will earn significant profits through making an initial payment and then recruiting others to distribute the product.

The U.S. Securities and Exchange Commission or SEC has powerful resources that are used to investigate alleged Ponzi schemes. An investigation could lead to white collar crime charges, both from the SEC and the U.S. Attorney’s Office. Allegations of operating a Ponzi scheme should not be taken lightly because the penalties and consequences associated with a conviction could be very serious. A Louisianan under investigation for a Ponzi scheme will likely want to understand what legal defense options are available to them.


Source: U.S. Securities and Exchange Commission, “Ponzi Schemes,” accessed April 29, 2016