To some people and in some instances, spotting a Ponzi scheme is fairly easy. However, when people find themselves in desperate financial situations, they might get drawn into business opportunities that do not at first present themselves as Ponzi schemes.
When law enforcement finally cracks down on the organization, if they benefited from the scheme, they might find themselves drawn into an investigation. Law enforcement might then treat these people as possible perpetrators instead of potential victims, at first.
What is a Ponzi scheme?
According to the U.S. Securities and Exchange Commission, Ponzi schemes are a form of investment fraud. These organizations generally only make money from continued investments from other people while promising large returns. The people at the head of the organization then pay some of the earlier investors and pocket the rest of the money. Because earlier investors get paid, they often form part of the initial suspect list until cleared.
What are the warning signs to look out for?
People who did not play an active role in Ponzi schemes tend to clear their names. However, nothing beats not getting involved in the first place. These represent the primary red flags to look out for:
- Promises of high and consistent returns but little to no risk
- Complex strategies that often involve some secrecy
- Investments not registered with state regulators or the SEC
- Sellers with no legitimate proof of state or federal licenses
- Difficulty cashing out or receiving promised payments
When the justice system identifies and convicts who it believes sits at the head of Ponzi schemes, expect big consequences. ABC News reports that in one recent Texas case, the court ordered the convicted person to pay $10 million. He also faces 25 years in prison at 79 years old.