Recognizing Ponzi Schemes

Securities litigation lawyers provide comprehensive representation in Ponzi scheme cases.Investors are always looking for the best opportunity, the one that gives them the best return with the lowest risk possible. Some opportunities are simply too good to be true, however, and cannot deliver on the promises that are made. Recent high profile cases, in particular the Bernie Madoff scandal, have popularized the term “Ponzi scheme,” but few people fully understand what a Ponzi scheme is. The Madoff scheme, by itself, reportedly swindled investors out of $65 billion, so it is vital for investors to recognize the warning signs and protect their assets from swindlers who, like Madoff, are seeking to prey on unwary investors.

A Ponzi scheme is an investment structure in which the person organizing the scheme does not actually invest the money he or she receives. Rather, the “returns” given to investors are, in fact, funds from other investors. This requires a constant influx of new investments, and when the flow of cash slows, the scheme can quickly fall apart. While Ponzi schemes can seem very different on the surface, they often share a number of similar characteristics.

False Promises and Secretive Tactics

Almost all Ponzi schemes promise investors outrageously high rewards for virtually no risk. For most investments, the risk increases with the potential return, and results are never guaranteed, so any promise of a large payout should raise a red flag. Investors should also be concerned if they are receiving very consistent returns; investments such as stocks are notoriously unpredictable, so receiving payments with little variation over multiple periods is highly unlikely if the investments are legitimate.

Brokers should be transparent with their investors and provide detailed information on how their clients’ funds are being managed. Legitimate investments are registered with the Securities and Exchange Commission (“SEC”) so that the agency can make information about a company’s operations and financial status available to the public. Investors should make sure potential investment opportunities are registered; if not, they may want to reconsider and perform additional research. Individuals and firms that sell stocks or manage investments must also be registered with the SEC, and potential investors should verify their registration status before doing business with them.

The behavior of the seller can also raise some red flags for investors. If brokers are secretive about their strategies or provide complicated explanations that are difficult to understand, the brokers may be engaged in fraudulent activities. Investors should receive regular statements that clearly outline the status of their investments. Statements that contain errors or are not formatted in a professional manner are most likely an indication that an investor may not be dealing with a professional operation.

Ponzi schemes are dependent on the constant in-flow of cash. Investors should receive promised payments on time and have the option to cash out whenever they choose. A Ponzi scheme organizer may delay payments or try to convince investors to stay, with promises of greater payouts in the future. Additionally, these brokers may pressure investors to recruit other people in their network to participate. Investors with questions about investment monitoring or possible securities fraud should consult with an experienced attorney.

Securities Litigation Lawyers at SFMS Provide Comprehensive Representation in Ponzi Scheme Cases

The securities litigation lawyers at Shepherd, Finkelman, Miller & Shah, LLP understand the complexities of securities fraud cases, including those involving Ponzi schemes. We have the knowledge and resources to protect your interests and achieve the best possible result in your case. Call us today at 877-891-9880 or contact us online to discuss your case with an experienced securities litigation lawyer.

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