It is estimated that investment fraud schemes are costing U.S. investors
around $40 billion every year. Unsuspecting or inexperienced investors
are the most susceptible to investment schemes, and many fall victim to
investment fraud, losing hundreds of thousands of dollars in the process.
With 50 years of combined legal experience, our firm has represented hundreds
of victims of Ponzi schemes.
Ponzi Schemes – Definition & Warning Signs
What is a Ponzi scheme? Basically, it’s where a scammer uses funds
from new investors to pay the returns to existing investors. There is
no real money being generated, and once the scammer is unable to get more
new investors, the scheme will fall apart. Being able to recognize this
type of investment fraud is important if you want to avoid losing thousands
of your hard earned money to a scam. The U.S. Securities and Exchange
Commission (SEC) has laid out 7 warning signs to alert potential investors
to a Ponzi scheme.
The warning signs of a Ponzi scheme include:
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Complicated or secret investment strategies. Some of the most infamous Ponzi schemers, including Bernie Madoff, Sam
Israel, and Martin Frankel, claimed that they had access to special financial
instruments and trading models that were not available to the public.
Their investment strategies were secretive and extremely complex. Thus,
if the investment model of a particular investment is too complicated
to understand, it may be a warning sign that it is a Ponzi scheme.
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Promises of high investment returns with very little or no risk. Ponzi schemes often promise a large amount of return for little or no
risk. Sometimes, the scammer will guarantee a high rate of return, claiming
the investment model is foolproof and sure. However, in general, the higher
the rate of return, the higher the risk. Thus, if an investment promises
a high return with no risk, there is a good chance it may be a Ponzi scheme.
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Unusually consistent return rates. Investment values, especially those with higher returns, tend to fluctuate
as the market value rises and falls over time. However, Ponzi schemes
often generate positive and regular returns no matter what the overall
market value is. Thus, unusually consistent return rates can alert you
to a potential fraud.
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Sellers that are unlicensed. Under federal and state securities laws, companies, individuals, and others
who sell in the investment market must be licensed and registered. If
you are looking to invest in a company, you must make sure it is licensed
with the proper state or federal entity. If a little research reveals
that the seller for the investment is not licensed, you should avoid becoming
involved in the investment.
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Investments that are unregistered. Federal laws require all investments to be registered with the SEC. They
may also be registered with state regulators. Registered investments provide
information to potential investors, including key data regarding the services,
financial status, products, and management of a particular company. If
no information is provided and the investment is not registered, it may
be a sign that it is a Ponzi scheme.
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Payment problems. Sometimes, those involved in Ponzi schemes may have difficulty receiving
payments for promised returns. They may also have trouble cashing or withdrawing
money from the account. Since Ponzi schemes rely on money from new investors
to pay the existing investors, issues involving payments may be a warning sign.
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Paperwork problems. Ponzi schemes often do not provide detailed information up front to potential
investors. Furthermore, investment fraud scams may have errors and inconsistencies
in the account information that an alert investor can notice. If you have
trouble obtaining information about the account, or the information provided
doesn’t seem quite right, you may be looking at a Ponzi scheme.
How to Avoid Becoming a Victim to a Ponzi Scheme
In order to avoid Ponzi schemes, or any investment fraud scam, there are
certain steps you can take. First of all, you should exercise common sense,
and avoid any investment that exhibits the above warning signs of fraud.
If you are a new investor, it is important to be cautious and wary of
unbelievably good investments.
What should you do to avoid Ponzi schemes?
- Conduct a thorough investigation of the account
- Check to see whether the account is registered
- Analyze the risk-reward ratio to determine if the risk seems too low
- Get advice from trusted and experienced investors
- Make sure to get detailed information of the account
- Make sure you clearly understand the investment model
Passionate Representation for Victims of Investment Fraud
At Baldwin Mader Law Group, we have guided hundreds of clients to successful
solutions. Our California investment fraud attorneys have a thorough understanding
of federal and state laws regarding investment fraud, and can help determine
if you have been the victim of a Ponzi scheme. We can discuss your situation,
answer your questions, and walk you through the process. We know you are
going through a stressful time. That is why our legal team will work diligently
on your behalf every step of the way as you seek a favorable outcome.
Contact us
today for tenacious representation in California. We offer free initial
consultations for your convenience.