Ponzi Schemes

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Securities Lawyers Fight for Those Defrauded in Ponzi Schemes

A Ponzi scheme is a type of investment fraud in which a third party/fraudster entices people to invest in a nonexistent business, usually with the promise of high rates of return, then makes payments to the investors using money obtained from later investors. Contrary to popular belief, sophisticated investors are just as susceptible as inexperienced investors to this scam.  The scheme keeps expanding because the fraudster continually attracts more investors to obtain more money to keep paying off earlier investors. Ponzi schemes are named after Charles Ponzi, a criminal from the 1920s, but perhaps the most well-known Ponzi scheme was the one operated for  17 years by financier Bernie Madoff, ending with his arrest in 2008.

The money generated by a Ponzi scheme is typically pocketed by the operator of the scheme. The biggest problem for investors is that by the time the scheme falls apart, the money is usually gone, making it very difficult for the investors to recoup their losses. That is why investors need the help of a skilled Ponzi scheme lawyer. The securities fraud lawyers of Girard Bengali, APC, have been fighting for the rights of defrauded investors for years, representing both individual and institutional investors in all types of securities arbitration and litigation.

Spotting the Red Flags of a Ponzi Scheme

Many Ponzi schemes grow because the perpetrator is considered a reputable broker or advisor who is trusted by his or her firm and clients. Often, the scheme gets off the ground when a few original investors refer their friends or family members to the advisor, not knowing that the advisor is running an illegal operation.

The Securities and Exchange Commission (SEC) offers several warning signs that investors should look for:

  • Attractive returns without risk: Legitimate investments always involve the risk of loss, particularly investments that have the chance of high returns. Be suspicious if you are presented a “guaranteed” investment opportunity or one with the promise of high returns with little to no risk.
  • Unusually consistent returns: Returns vary along with markets. Be wary of an investment that continues paying returns of the same amount regardless of what is happening in the overall market.
  • Unlicensed sellers: The SEC and state law require investment professionals and firms to have proper licenses. Be cautious of any advisor or firm that lacks licensing.
  • Unregistered securities: Many Ponzi schemes use unregistered investments because proper registration  requires divulging information about a company’s management and products. Remember, in a Ponzi scheme there usually is no legitimate company to invest in.
  • Paperwork problems: Don’t accept excuses about why you cannot obtain investment information in writing. Similarly, if you receive account statements that contain errors, that could be a sign that something is wrong.
  • Payment problems: If you do not receive a payout or you want to cash out your investment and cannot, you should be suspicious. Also, Ponzi schemers may ask you to “roll over” your investment; in other words, skip a payout right now with the promise of an even larger payout in the future. This can be a sign that the schemer is running out of new investors to supply fresh money to keep funding the scheme.

Who Can Bring a Lawsuit Over a Ponzi Scheme?

First, the operator(s) of the Ponzi scheme will likely face criminal charges. In terms of civil proceedings, if the operator of the Ponzi scheme is a registered representative, then he/she will most likely be subject to FINRA arbitration. If the operator is not registered, then individual investors may be able to bring civil lawsuits against the operator or his/her firm. If an investor is successful in a lawsuit, then collecting on the judgment is the next issue, and it can be very complicated given that many Ponzi schemers file bankruptcy and take other measures to avoid paying judgments.

Contact a Ponzi Scheme Attorney

If you lost your hard-earned money to a Ponzi scheme, do not wait to retain counsel. You want your claim to be made known as early as possible in the legal process. The attorneys of Girard Bengali, APC, know how to handle these complex situations and determine what legal responsibility your broker/advisor may have. Find out about your potential to recover damages by calling us at 866-778-6821 or send us an email. We have offices in Los Angeles, Newport Beach and San Francisco, California..

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