Ponzi Scams

A Ponzi scam is a type of investment scheme in which the fraudster uses newer investors’ money to pay supposed income, dividends, redemptions, or returns to existing investors.

The investors usually don’t have any idea that these payments are not being generated by their investments and are, in fact, the misrepresentations of other investors’ monies. A Ponzi scheme will inevitably fail and become exposed because, at some point, there will not be enough money coming from newer investors to pay earlier investors.

• Bernard Madoff’s $65B Ponzi scheme is the most infamous and largest Ponzi scheme to date and may have begun as far back as the 1970s until his arrest in 2008. Famous celebrities, wealthy investors, small business owners, and retail investors were among his 37,000 victims.
• Allen Stanford’s $7B Ponzi scheme went on for 20 years. He bilked 30,000 investors through his offshore bank in Antigua.
• Businessman Tom Petters’ $3.7B Ponzi scheme cost hedge funds, pastors, and others.

More recently, in 2021, the Securities and Exchange Commission (SEC) filed a fraud lawsuit over the $1.8B GPB Ponzi scam. The scheme enriched GPB Capital Holdings executives, earned brokerage firms over $160M in commissions, and defrauded more than $17K investors.

Sometimes it can take a while for investors to realize they’ve become the victims of a Ponzi scam, which is how many investors get defrauded. Often, the scammer will be associated with a known brokerage firm or another type of financial company.

For example, both Bernie Madoff and Allan Stanford ran Bernard L. Madoff Investment Securities LLC and Stanford Financial Group, respectively. In the GPB Ponzi fraud, over 60 broker-dealers vouched for the GPB funds and their private placements. There are also the ventures that initially start out as legitimate investment opportunities, generating real returns, but later became Ponzi schemes.

According to the US Securities and Exchange Commission, a few possible signs that you are the victim of Ponzi fraud can include:

• The promise of high returns with no (or hardly any) risk. You should know that returns are never “guaranteed,” and there is always some risk when investing
• Returns that are too consistent. If your investment continues to make you very good returns even when the market is fluctuating, this could be a red flag
• The investments are unregistered
• The seller is unlicensed, which violates both federal and state laws
• You have a hard time getting paid your returns or cashing out

In a Ponzi scheme, investors give their money to a portfolio manager, and earlier investors are paid with newer investors’ money. In a pyramid scheme, the fraudster will recruit investors, who, in turn, recruit more investors that will bring in more investors. Each investor pays the ones who recruited them for the opportunity to participate in the venture, perhaps even to sell a certain product or service.

Those who are paid these payments then share these proceeds with the ones who came before them on the “pyramid.” The higher up the “pyramid” someone is, the greater their chunk of the profit as more participants are added. The ones at the bottom of the pyramid make the least. A pyramid scheme will fall when new investors stop joining.

Our seasoned Ponzi fraud attorneys and investment loss lawyers at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) represent clients who have suffered losses in investment scams.

Even if your broker and their firm weren’t aware that the investment opportunities they recommended to you were a Ponzi scheme, and you suffered serious investment losses as a result, you still might have grounds for filing a Financial Industry Regulatory Authority (FINRA) arbitration claim to recover your losses.

If you suspect that you may be a victim of a Ponzi scam, contact SSEK Law Firm right away. The sooner a Ponzi scheme is exposed, the faster it can get shut down, and you can start fighting to recoup your losses.

Chances are, you are not the only one wondering if you are being defrauded. Call (866) 931-7628 today or contact us online to schedule your free case consultation with skilled investment fraud attorneys and FINRA lawyers so that we can go over your legal options with you.