The term Ponzi scheme garnered its name in 1920 after a high-profile fraud case. Today, it refers to an investment scam that involves paying investors with money procured from new ones. Those accused of engaging in a Ponzi scheme could face serious federal charges.
Ponzi schemes explained
With a Ponzi scheme, new investors typically receive the same promise as older investors. Namely, the person running the Ponzi scheme suggests the investment will pay high returns with little risk. Ultimately, the new investors put money into the scheme and await their return on investment. The new investors’ money then pays the older investors, even though all parties assume the money is invested in a stable and legal vehicle.
If the person running the Ponzi scheme cannot attract new investors, the scam runs the risk of exposure. With no new money, paying the original investors could become impossible. The investors may discover their statement balances are fraudulent and the money doesn’t exist.
Allegations of fraud
Although someone may face allegations they committed fraud, that does not automatically equate to a strong case against them. Investigators may come to the wrong conclusions, and authorities might be overzealous in issuing white-collar crime charges.
Unfortunately, people could make mistakes or face problems that create perceptions of fraud. For example, someone who accepts payment in advance for products or services and doesn’t deliver my face claims of mass fraud. However, other issues could prevent the completion of the deal. The person may face civil lawsuits for negligence, but criminal counts could be inappropriate.
Additionally, there could be problems with the police work that hurt a case against someone accused of fraud. As with other criminal proceedings, the police must acquire warrants when necessary and respect a suspect’s constitutional rights.