Practice Areas Investment Fraud Ponzi Scheme

Ponzi Scheme Lawyer

A Ponzi scheme is a type of investment fraud in which money from newer investors is used to pay earlier investors. These schemes generally attract unsuspecting investors by promising high returns with low risk. The promoters of the schemes offer few details and potential investors are often told that the mechanics of the investment are secret or proprietary. In truth, investors often lose more than they imagined and they find themselves searching for a reputable Ponzi scheme lawyer.

Promoters of the scheme gain credibility by paying investors high returns for months, even years. The catch is that they are actually paying “returns” to early investors with money raised from subsequent investors or from their own funds. In order to keep the scheme going, the promoters must continually recruit new investors. Ponzi schemes are destined to collapse – at some point the scheme will grow too large and the proceeds from new investors will be insufficient to pay the earlier investors. Ponzi schemes can also fall apart if a large number of investors seek to cash out.

The term “Ponzi scheme” was named after Charles Ponzi. In the early 1900s, Charles Ponzi created an investment scheme which, in theory, involved buying and selling international coupons for postage stamps, but actually resulted in diverting money from newer investors to support payments to earlier investors.

The Madoff Ponzi Scheme

Ponzi schemes have victimized investors for years. Such Ponzi schemes are always unstable, but the promoters use tactics to create the illusion of solvency, concealing their inevitable collapse. In recent years, the most notorious Ponzi scheme was operated by Bernard Madoff. The Madoff Ponzi scheme involved the largest case of securities fraud in U.S. history. Investors suffered nearly $65 billion in losses prior to the collapse of the scheme in 2008. Madoff admitted to creating false trading reports for over 1,000 investors. He pled guilty to multiple counts of securities fraud and was sentenced to 150 years in federal prison.

Red Flags for Ponzi Schemes (and Other Investment Fraud Scams)

That said, there are a number of red flags that tend to be indicative of fraudulent investment scams. Yet, even when some (or all) of these red flags are present, sophisticated scam artists will often still be able to convince unsuspecting investors to hand over their hard-earned funds. Some of the common hallmarks of Ponzi schemes and other investment scams include:

• Promises of guaranteed returns (and often promises of substantial guaranteed returns);
• Aggressive sales tactics and evasiveness when individuals claiming to be legitimate brokers or advisers are asked for documentation;
• Unsolicited investment inquiries from people you don’t know (although affinity fraud scams remain common as well);
• Inability to gain access to investment information or discrepancies on account statements; and,
• Overly-complicated investment opportunities, financial transactions or entity structures.

How to Spot a Ponzi Scheme

As an investor, it is important to know how to spot a Ponzi scheme. While these schemes are illegal under federal and state securities laws, they remain common, and scam artists are finding increasingly sophisticated ways to convince investors to part ways with their hard-earned funds.

While many Ponzi schemes target vulnerable investors (such as novice investors and elderly retirement savers who have spent their lives saving to live comfortably in old age), even sophisticated investors can fall victim. Ponzi scheme operators often use fake websites, spoofed email addresses, trademark misappropriation and other means to make their “investment opportunities” appear legitimate. Spotting these Ponzi schemes can be extremely difficult, as evidenced by the large number of victims who fall prey to these schemes each year.

With that said, most Ponzi schemes still have several hallmarks of fraud. As an investor, the key is knowing what to look for (and where to look for it). For example, the following are ways you can potentially spot a Ponzi scheme:

• An Unregistered Investment Offering – All investments offered to the public should be registered with the U.S. Securities and Exchange Commission (SEC). While there are certain registration exemptions, these exemptions don’t apply to the vast majority of investments sold to retail investors on the open market.
• An Unregistered Broker or Brokerage Firm – All brokers and brokerage firms that offer their services to retail investors must register with the Financial Industry Regulatory Authority (FINRA). When investigating a potential investment offered by a broker, it is important to check both the individual broker and his or her brokerage firm using FINRA’s BrokerCheck. Ponzi scheme operators may attempt to represent themselves as registered brokers, or they may claim to be affiliated with a legitimate brokerage despite having no such affiliation.
• Lack of Readily Available Documentation – Any time you are considering an investment opportunity, you should be able to readily access the information you need to make an informed investment decision. If a person who is offering an investment is evasive about providing you with a prospectus or any other documents, this could be a sign of a Ponzi scheme or another investment fraud scam.
• Erroneous or Inconsistent Documentation – Scam artists will often generate documentation that is either full of errors or contradicts itself. In contrast, legitimate documentation prepared by companies’ and brokerage firms’ accountants and attorneys should appear to be professionally written.
• High-Pressure Sales Tactics and “Limited Time” Opportunities – Legitimate brokers and brokerage firms will not use high-pressure sales tactics or try to convince you to invest quickly without taking the time to make an informed decision. If you are feeling pressured to invest in any way, this is a sign that you should pause, do your research, and make sure you are not making a risky decision.

There are plenty of investment opportunities, so there is no reason to pursue an investment that appears to be questionable. If you have concerns about the legitimacy of an investment opportunity for any reason, it is best to listen to your instinct (or seek professional advice from a trustworthy source) and make sure you are only investing in legitimate companies and funds. 

What Can Investors Do After Losing Money in a Ponzi Scheme?

Even if the SEC pursues criminal charges against a Ponzi scheme operator, this does not mean that defrauded investors will recoup their investment losses. Instead, investors must take legal action on their own. This means engaging a securities litigation law firm to file a lawsuit against the Ponzi scheme operator in federal district court.

For investors who fall victim to Ponzi schemes, taking legal action promptly generally provides the best chance of recovery. As a result, if you believe that you may be a victim (or if you know you are a victim), we strongly encourage you to contact us right away.

A Ponzi Scheme Lawyer Can Help

When a Ponzi scheme collapses, investors wonder if they will be able to recover any of their losses. If the Ponzi operator is registered as a representative of a legitimate brokerage firm, the firm may be liable for the operator’s actions, even if it was unaware of the broker’s fraudulent investment practices. And if a third-party institution, such as a bank or IRA custodian, facilitated the Ponzi scheme or allowed it to go undetected because of its faulty due diligence or other negligence, that institution can also be liable for investor losses.

The securities fraud attorneys at Zamansky LLC have the skills and experience to successfully investigate and prosecute Ponzi scheme cases. We generally pursue these cases as class action matters, but your Ponzi scheme lawyer can also proceed through individual arbitration.

Our Ponzi Scheme Lawyer Answers Investors FAQs

What Are the Warning Signs of a Potential Ponzi Scheme?

All Ponzi schemes operate in the same basic way: They rely on fraud and misdirection to convince victims to invest their hard-earned funds, and then they use new investors’ principal to pay “returns” to earlier investors. These “returns” are not legitimate, but scam artists may make them appear legitimate by creating fictitious account statements and other fraudulent documents.

With this in mind, there are several warning signs of a potential Ponzi scheme, including:

• Guarantees of high returns and promises of little to no risk
• The individual promoting the investment opportunity is not licensed or registered
• The securities underlying the investment opportunity are not registered
• You are being asked to deposit funds without completing paperwork
• You are not offered clear and comprehensive documentation of the investment opportunity
• You are receiving consistent returns despite market volatility
• You face resistance when attempting to withdraw your funds

Ponzi scheme operators are becoming increasingly sophisticated; and, as a result, these schemes are becoming increasingly difficult to spot. If you failed to spot the warning signs of a Ponzi scheme, you are not alone, and a Ponzi scheme attorney may be able to help you.

Can I Recover the Money I Lost in a Ponzi Scheme?

It is possible to recover money lost in a Ponzi scheme in many cases. Depending on the circumstances involved, our Ponzi scheme lawyer may be able to help you recover your losses through FINRA arbitration or litigation in federal court. Ponzi scheme victims can pursue class-action lawsuits in some cases as well.

In some cases, Ponzi scheme operators will literally take the money and run. This makes it important for victims to take legal action as soon as possible. But, even if it is not feasible to pursue a claim against the operator directly, it may still be possible to hold your brokerage firm or another third party accountable.

What Should I Do if I Think I Invested in a Ponzi Scheme?

If you believe that you may be the victim of a Ponzi scheme, there are some important steps you should take to protect yourself. This is true whether you have your own suspicions or the SEC has already filed charges against the Ponzi scheme operator. If you have concerns about a possible Ponzi scheme, you should:

• Not contact your brokerage firm or the Ponzi scheme operator. You need to be very careful about what you say to your brokerage firm or the Ponzi scheme operator. While you may be tempted to complain, this could do more harm than good. At this point, you should let your Ponzi scheme attorney do the talking for you.
• Collect your account statements and other relevant documentation. Your attorney will need to review your account statements and any other documentation you have related to your investment. You should collect these if you have them or can download them from your online account, but you should not reach out to request them.
• Speak with a Ponzi scheme attorney. Recovering your losses will require representation by a lawyer who has specific experience handling Ponzi scheme cases. We provide free consultations, and we encourage you to contact us right away if you think you may have a claim.

Ways to Protect Yourself from Losing Money in a Ponzi Scheme

As we mentioned above, Ponzi scheme operators are finding new and more sophisticated ways to target investors, and this is making it harder for investors to avoid becoming victims. But, there are still ways investors can protect themselves in many cases. For example:

1. Avoid Getting Involved

The best way to avoid losing money in a Ponzi scheme is to avoid getting involved altogether. If you can keep yourself from falling for these common tactics, you will be able to protect yourself against falling for most Ponzi schemes (and other investment fraud scams):

• Unsolicited cold calls, text messages, emails and direct messages on social media
• Offers for “unique” or “novel” investment opportunities
• Offers with “limited availability” or additional benefits for early-stage investors

Additionally, Ponzi scheme operators will often rely on what is known as “affinity fraud.” This is fraud targeting a particular group, such as the elderly or members of a particular religious organization. If you receive an advertisement for a “free lunch” seminar, or if other members of your congregation have received similar solicitations, this may also be a red flag.

2. Do Your Research

When considering any type of investment opportunity, it is important to do your research before you invest. This is especially true when you have identified potential red flags. Some examples of ways prospective investors can research investment opportunities include:

• Asking for license and registration information
• Using FINRA BrokerCheck
• Verifying information provided to you with independent third-party sources

If you have concerns, you can also contact a Ponzi scheme attorney. An attorney will be able to tell you if his or her firm is conducting (or aware of) any ongoing investigations regarding the investment opportunity in question.

3. Avoid High-Risk Investment Products

Ponzi scheme operators often promote complex investment products. They do this for two reasons: (i) they know that most investors don’t understand these investment products and thus will have a difficult time discerning whether their losses are legitimate; and, (ii) since these tend to be high-risk assets, they will have a fallback excuse when investors lose money. Some examples of high-risk investment products that are frequently associated with Ponzi schemes include:

• Closed-end funds
• Limited partnerships
• Real estate investment trusts (REITs)
• Private placements
• Promissory notes
• Reverse convertibles
• Structured notes
• Unregistered securities

These are just examples; and, while these products are all frequently associated with Ponzi schemes, they can all be legitimate investments. Individuals who invest in these types of products can lose money due to other fraudulent practices as well. In short, understanding your risks and legal rights as an investor can be complicated; and, if you have any concerns, the best thing you can do is consult with a Ponzi scheme lawyer promptly. 

Current Cases Being Managed by Zamansky, LLC

Our Ponzi scheme lawyers are currently representing victims in several investment fraud cases:

Case Alert: Currently, Zamansky, LLC is investigating accusations of a Ponzi scheme involving Horizon Private Equity III Fund Through Oppenheimer Financial Advisors John J. Woods, Michael Mooney, and Arthur Brown. Learn more…

Dawson Mortgage Fraud Case. Our securities fraud law firm is representing the victims of a major mortgage fraud -Ponzi scheme case in New York State Court. The victims are seeking to recover damages resulting from fraud associated with the granting of home mortgage loans under highly suspicious circumstances.  This New York Times report provides more information about this case.

Grund v. Principal Financial.  New York federal Judge Robert Sweet rendered a decision allowing a class of investors in the Westgate Ponzi scheme to seek recovery of their $150 million in losses from Principal Financial, the IRA custodian. This important decision could change the landscape in this area of the law in favor of investors.

If you believe that you may be a victim of a Ponzi scheme, contact Zamansky LLC today to schedule a free, no-obligation consultation. An experienced Ponzi scheme attorney  will review your case to determine if you have a potential claim for recovery.