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.
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.