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When is an investment plan considered an illegal Ponzi scheme?

On Behalf of | Apr 15, 2021 | White Collar Crimes |

Sometimes what seems like a get rich quick scheme is simply too good to be true. However, while losing out on money is distressing, what can be more distressing is to be charged with running an illegal Ponzi scheme.

What is a Ponzi scheme?

Ponzi schemes are a type of investment fraud. In a Ponzi scheme, the person organizing the scheme promises investors that these investments will result in high returns and that the scheme is virtually risk-free. However, in a Ponzi scheme, the person organizing the scheme does not invest the funds received and instead uses these funds to pay earlier investors or keep these funds for themselves. The scheme will generally fall apart when it is unable to recruit new investors or if many investors cash out.

Characteristics of a Ponzi scheme

There are certain characteristics a Ponzi scheme has versus a legitimate investment plan. Ponzi schemes promise high returns with little risk. Consistent positive returns that do not corollate with market fluctuations is also a characteristic of a Ponzi scheme. Investments that are not registered with the U.S. Securities and Exchange Commission are another characteristic of a Ponzi scheme. Another indicator of a Ponzi scheme are sellers or firms that are unlicensed or unregistered. Secret strategies and errors in account statements are also characteristics of a Ponzi scheme. Finally, Ponzi schemes may fail to pay investors or may make it difficult for investors to cash out.

Learn more about white collar crimes

Ultimately, this post is for educational purposes only and does not provide legal advice. Ponzi schemes may be type of white collar crime but they are not a victimless crime. Those in Indianapolis who want to learn more about white collar crimes are encouraged to explore our firm’s website for further information.


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