Charles Ponzi was a con man of the 1920s who was able to steal money from unsuspecting investors. Essentially, Ponzi planned to take money from investors with the promise of profiting several months later. Ponzi would then use the money from new investors (often people who knew someone who had already invested) to pay old investors while making a profit for himself.
Ponzi’s plan was eventually uncovered and led to the coined term “Ponzi schemes.” Many people still run Ponzi schemes today and many investors never realize they’re involved until it’s too late. There are several ways to know if you’re involved in a Ponzi scheme:
1. High rewards, no risk
Everything has a price, especially the fluctuation of any investment. Typically the higher the reward, the higher the risk. Ponzi schemes, however, often promise a high reward at little to no risk in an investment opportunity.
2. Falsified or missing paperwork
Accounting statements should tell exactly how funds are being invested. If you find paperwork that’s been edited to show less or more investments than what’s truthfully being made or there’s paperwork conveniently missing, then there might be a Ponzi scheme at play.
3. Hidden or confusing investment strategies
Someone may try to sell an investment plan that isn’t clear what it intends to accomplish. If there’s an investment strategy that doesn’t say exactly what it intends to do, then it may be part of a Ponzi scheme.
Many schemes today look similar to Ponzi schemes. Some people may unwillingly advertise a Ponzi scheme under the impression that it intends to do right by the investors – and that can lead to unexpected criminal charges. If you’ve been caught up in a scam and are facing charges, find out what defenses are available.