Charles Ponzi is the man behind the term Ponzi scheme. During the 1920s, he convinced thousands of New Englanders to invest in a scheme involving postage stamps. He promised those investors a 50 percent return on their money in only three months. He eventually had to use the money provided by new investors to pay the older investors.
That's what a Ponzi scheme is. It is a promise to pay returns to investors, but eventually has to use funds from the new investors to make the payments that are due to the older investors. When there are no more new investors or when many investors want out, the scheme usually collapses.
Some of the common characteristics of Ponzi schemes include:
-- Investments that are not registered with state regulators or the Securities Exchange Commission.
-- A "guaranteed" investment opportunity that promises high returns with just a little risk.
-- Returns that are always positive, even during market fluctuations.
-- Strategies that are secret or overly complex.
-- Little paperwork.
-- Payments that are due but never received. Instead, there is pressure to allow returns to "roll over."
Those who have been charged with white collar crimes such as Ponzi or pyramid schemes need to understand their rights. It's important for people to remember that an arrest and criminal charges does not mean someone is guilty. A judge or jury must find that a defendant is guilty beyond a reasonable doubt. An experienced attorney can provide more information about building a strong criminal defense against white collar crimes.
Source: U.S. Securities and Exchange Commission, "What Is a Ponzi Scheme?" Aug. 29, 2014