Is this a Ponzi scheme?

On Behalf of | Aug 4, 2021 | Fraud, White Collar Crimes

You may think that you would be able to recognize a Ponzi scheme upon first glance, and many others feel the same. But unfortunately, it is actually quite hard to spot certain types of Ponzi schemes, especially when they present themselves in an entirely different way at first.

If law enforcement ever cracks down on some type of Ponzi scheme that you ended up entangled in, you might end up drawn into an investigation if you benefited from it, even if you did not know what was happening. This can end in a sticky situation where you get treated as a perpetrator rather than the victim you are.

Ponzi schemes as investment fraud

The U.S. Securities and Exchange Commission discusses Ponzi schemes. They serve as a form of investment fraud, which makes money from investments from other individuals who get promised large returns that never truly happen. Those at the head of the Ponzi scheme pay earlier investors while pocketing the remaining money. However, due to the earlier investors getting a cut, investigations will often treat them as suspicious at first.

Knowing the red flags

If you truly had no intentional involvement, you will likely be able to clear your name. But it is best to avoid the situation entirely, which means knowing what signs to look out for when choosing what to invest in. Ponzi schemes often share the same red flags, including having sellers with no federal licenses and complex strategies that involve secrecy.

Other warning signs include trouble receiving promised payments or cashing out, promises of consistent and high returns without going into the risks, and investments that are not registered with the state regulators. If you notice such signs, you are likely dealing with a fraudulent scheme.