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What are Ponzi Schemes and Other Fraudulent Enterprises?

A Ponzi scheme is a form of investment fraud where the organizer of the scheme pays investment returns to current investors from new capital paid to the organizers from new investors.   The scheme is named after Charles Ponzi, a Boston businessman, who became famous for using this fraudulent investment scheme in the 1920s.  Essentially, Ponzi  paid investors large interest payments on short-term investments with money from new investors, while spending much of the incoming funds for personal purposes. 

Warning Signs of a Ponzi Scheme:

  • Ponzi schemes come in various forms and sizes, but most share the following characteristics:

  • The organizer promises unusually high investment returns

  • The organizer claims that the investment strategy is proprietary, a secret, or an exclusive offer

  • Vague descriptions of the investment strategy, such as high-yield investment programs and offshore trading

  • Irregular or non-existent monthly account statements

  • The investment strategy is not connected to a legitimate physical business location

  • The organizer persistently solicits new investments or proposes new investment programs

  • The investment organizer is difficult to communicate with or disappears entirely

How to Recover Ponzi Scheme Losses?

Ponzi scheme cases are often some of the most difficult cases for an investor to recover their losses because by the time the investor realizes they are a victim of a Ponzi scheme, the organizer has disappeared, become imprisoned or does not have sufficient assets to compensate the victims.   The sad reality is that many Ponzi scheme victims, such as those who invested with Bernie Madoff, only recover pennies on the dollar of their initial investments.

Investors often look to other parties who aid and abetted the execution of the fraudulent scheme.  For example, some investors look to brokerage firms, clearing firms or banks where the investor's money was deposited.  Cases involving third parties who may have aided and abetted the fraud usually turn on the specific facts surrounding the fraudulent scheme and whether the third party had any reason to know the organizer was using their services to perpetrate a Ponzi scheme.  In particular, courts look to whether the third party ignored "red flags" and should have been aware of the fraudulent scheme. 

The attorneys at Lufrano Law, LLC have experience bringing Ponzi scheme-style fraud cases.  Indeed, we helped our clients recover a $1.75 million judgment against a Ponzi scheme fraudster in 2013.  Please contact us today for a free, no-commitment consultation.

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