Six Warning Signs of Ponzi Schemes

The phrase "Ponzi scheme" originated in the early 1920s, when the notorious Charles Ponzi defrauded investors of millions of dollars under the guise of a postal arbitrage system. The underlying premise utilized by Charles Ponzi is still very prevalent in the investment fraud cases of today.

What is a Ponzi scheme?

A Ponzi scheme is a type of investment fraud that involves payment of false "returns" from monies contributed by other investors or new investors.

Six Signs of Ponzi Schemes

Ponzi schemes occur under many different labels and guises, but there are a few common characteristics they may share. Investors should be cautious if they observe any of the following signs:

1. "Guaranteed" High Returns: All investments carry risk. This is particularly the case with high return investments (the golden adage is risk=reward). Any investment with very high rates of return that are represented as "guaranteed" should be treated with suspicion.
2. Obfuscated Information: Always read an investment's prospectus or disclosure statement carefully before you invest. Excuses about missing paperwork, account errors, or complex, secretive strategies are red flags.
3. Consistent High Returns (In Contrast to Market): Investments with high returns tend to carry more "risk," and thus are more volatile. Be extremely cautious of any investment generating consistent high returns that seems unaffected by economic factors.
4. Unregistered Investments: Most cases of investment fraud involve investments that have not been registered with the SEC or regulators.
5. Unlicensed Sellers: The law requires that investment professionals and their firms be licensed and registered. Many Ponzi schemes involve unregistered firms and/or unlicensed individuals.
6. Pressure to Reinvest: Ponzi schemes collapse without regular income or when too many investors cash out. Propagators often will try to dissuade investors from cashing out, offering even higher returns as an incentive.

The Law Firm of Meyer Wilson

If any of the six warning signs above sound familiar and you fear that you may have fallen victim to investment fraud, then you may be able to recover your losses. The first step you should take if you suspect fraud is to contact an experienced investment fraud attorney. An attorney will take the time to go through your options and determine the best course of action.

For more information, contact the law firm of Meyer Wilson by calling toll free 866-827-6537 or filling out our online form.