Ponzi schemes, named after the infamous swindler Charles Ponzi, have been around for more than a century. Yet, despite their age, these schemes show no sign of slowing down. In fact, headlines announcing the latest attempts to perpetrate these frauds still regularly fill the news cycle. And federal regulators keep the prosecution of Ponzi schemes at the top of their enforcement agendas.
In more recent years, investors and creditors have been harmed by names that have become well recognized, such as Allen Stanford of Stanford Financial Group, Tom Petters of Petters Group Worldwide, and Joel Steinger of Mutual Benefits Corporation. Whether you are a senior officer charged with making investment decisions or an individual investor, recognizing the hallmarks of a Ponzi scheme is critical to preventing involvement in these schemes and knowing what to expect in the aftermath of one. Unlike other kinds of investment fraud, true Ponzi schemes are largely illegitimate from the start, making it particularly challenging to recover lost funds.
John J. Carney
A Ponzi scheme is a fraud where existing investors are paid with funds solicited from new investors. To perpetuate the scheme, there must be a regular flow of new investor money. A Ponzi scheme typically collapses when it becomes difficult to recruit new investors or when many existing investors seek to redeem their investments.
The U.S. Securities and Exchange Commission (SEC) has identified certain “red flags,” or…
