The Ponzi Scheme
It always, in hindsight unfortunately, is a deal that looks just too good to be true.
A bit of history first
The Ponzi scheme is named after Charles Ponzi, a con man who bilked investors out of millions in the early 1900s. In its simplest form, a Ponzi scheme distributes money (touted to be “income”) to early investors from funds which are raised from later investors. Most of the money which is raised is diverted to the perpetrators of the scheme instead of actually being invested. After a hundred years, it is amazing that this still is the most popular form of true securities fraud. Once again, beware of the deal that looks just too good.
WARNING SIGNS: We hope you are reading this in anticipation of making an investment and that this information will help you avoid making a mistake. If you have already made an investment and are now concerned about its legitimacy, these warning signs may assist you in evaluating your situation:
• Promised or “guaranteed” returns are inordinately high compared to conventional
investments from traditional brokerage firms. For example, if bank CD rates are 2%,
the potential investment opportunity is promising 15%…this should make you wary.
• There is a complete lack of transparency as to the existence and the actual whereabouts of the purported invested assets. Victims usually receive a “statement” that shows
money in, money out and gains (seldom losses), but provides no detail as to where the actual assets (i.e.; your money) is held.
• The mystique of “Hedge funds”, “offshore investments”, and “high yield” apparently are tried and true sound bites for the serious Ponzi fraudster, since most schemes have utilized them or other similar sounding descriptions in their marketing pitch.
Additionally, FINRA’s website has a Scam Meter tool that may be helpful in assessing a questionable situation.
What should I do if I think I am a victim of a Ponzi Scheme?
FIRST: Don’t give them any more $$$until you resolve your concern.
Next, contact someone knowledgeable in this area of the law to advise you regarding the appropriate course to follow.
If you have questions about your brokerage account, contact us today either by phone at 561-391-1900 or by filling out our online contact form.
See what the Securities & Exchange Commission has to say about Ponzi schemes.
Notorious Ponzi Schemes
Lou Pearlman – $300 Million -2008- Promoter for NSYNC and the Backstreet Boys.
Gerald Payne/ Greater Ministries International – $448 Million- 1990’s- “Double Your Blessings” scheme convinced 20,000 investors to had over their hard earned money.
Reed Slatkin – $593 Million – 2003- Co-founder of EarthLink and internet provider.
Scott Rothstein – $593 Million – 2010 – South Florida lawyer who convinced investors to buy into fake legal settlements.
Tom Petters – $3.7 Billion- 2010- promised investors that purchasing retail merchandise and selling it to discount retailers would make them a fortune.
R. Allen Stanford – $7 Billion – 2012- Twenty year scheme by this Texan involving fake certificates of deposit.
Bernie Madoff – The King of Ponzi Schemes – $20 Billion – 2008- Thousands of investors were conned into believing Madoff’s principal funds could out perform the standard indicies for decades, without risk.
If it sounds too good to be true, then it probably is