Ponzi and Pyramid Schemes

A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by later investors rather than from actual earned revenue. The scheme is named after Charles Ponzi, who became famous for using this technique in the 1920s. He paid investors large interest payments on short-term investments with money from new investors. At the same time, he spent much of the incoming funds for personal purposes. Ponzi did not invent the scheme, but his operation took in so much money that it was the first to become known throughout the United States. These types of schemes are illegal and continue to operate on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off the previous investors in a continuous and destructive cycle until the whole scheme eventually falls apart when not enough new investors can be found.

The investment opportunity may have been a genuine opportunity that did not work out as the promoter had planned or the entire operation may have been a fraud from the start. This uncertainty, coupled with the fact that many initial investors are paid "returns" at the beginning, makes it difficult for investors to realize the scheme for what it is until it is too late.

A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, a distinguishing characteristic is that in a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly.

Regardless of whether the promoter meant to defraud from the beginning, unsuspecting investors who invest in Ponzi and pyramid schemes often suffer massive financial losses when the pyramid collapses.

As the catastrophic losses suffered by the varied investors defrauded in the recent Bernie Madoff Ponzi scheme illustrate, victims can include anyone: individual investors, retirees, small businesses, corporations, pension funds and institutional investors. With over fifty years of combined legal experience, and having successfully represented over 800 investors, the securities arbitration lawyers at Meyer Wilson have the expertise, experience and resources necessary to review, investigate and aggressively pursue investor claims against the promoters of Ponzi and pyramid schemes.

We have recovered hundreds of millions of dollars in losses for clients nationwide, including in cities such as Los Angeles, San Francisco, Columbus, Cincinnati, New York, Detroit and Tampa. For assistance with your securities fraud claim, call us toll-free at 1.866.827.6537 or complete our online form for a free case evaluation.