The Ponzi scheme originated in the early part of the 20th century when a small-time con artist named Charles Ponzi devised a multi-level marketing scheme that turned him from a pauper to a millionaire. Eventually, however, the scheme ended with the arrest and imprisonment of Ponzi on federal charges of mail fraud.
Modern-day Ponzi schemes begin with investors being enticed by promises of rates of return on their investments. There is nothing illegal about promising people a high rate of return on their investment dollars. The illegal aspect of a scheme is what the originator of the plan does with the money.
Instead of investing the money as promised, the crime’s originator keeps the money from the first wave of investors who are paid a return on their investment from money taken in from new investors. The scheme continues on in this fashion with the swindler enticing new investors and using a portion of their money to distribute as “profits” to existing investors.
Ponzi schemes are also known as pyramid schemes because they start with a large base of potential investors, but as time goes on, the pool of new investors gets smaller and smaller in much the same way that a pyramid decreases in size from its base to its top. As the number of potential investors shrinks, the amount of new money coming into the pyramid scheme diminishes until there is not enough money to continue to make payments to existing investors. Eventually, the pyramid collapses.
Pyramid schemes can result in fraud charges, theft charges and other criminal charges not only against the originator of the scheme, but investigators and prosecutors can also go after investors who became aware of the fraud and solicited new investors. In some cases, prosecutors have filed criminal charges against financial institutions that had knowledge of the fraudulent nature of the scheme but kept silent.
State and federal prosecutions of individuals involved in Ponzi schemes can lead to criminal penalties that might include:
A criminal conviction of fraud or white-collar criminal offense charges in connection with a Ponzi scheme will result in an offender having a criminal record that could prevent the person from obtaining employment. This is particularly true for jobs involving the handling of money or being in a position of trust.
Ponzi schemes involve multi-level, complex organizations that could include hundreds or thousands of potential victims. Houston pyramid scheme lawyer Rand Mintzer knows that prosecutors build their pyramid scheme cases on the records compiled of the financial transactions that are at the heart of the scheme. A legitimate investment opportunity might appear to possess many of the characteristics of a scheme, so a thorough review of the evidence is essential in crafting a defense strategy.
If you are under investigation by state or federal law enforcement agencies, talk to Rand Mintzer, Attorney at Law right away at 713-862-8880.