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Ponzi Schemes

Ponzi schemes, also commonly referred to as Pyramid Schemes, is a type of investment fraud or scam that’s usually financially motivated. The purpose of a Ponzi scheme is to accumulate investors by promising to use the funds for lucrative projects with a nearly guaranteed return. However, instead of investing those funds in a project, the alleged offender or company uses the capital to instead pay the original investors their returns purported as profit.

Essentially, a Ponzi or Pyramid Schemes cannot thrive unless the company or individual continues to secure new investors so they can generate returns for the original investors. These disbursements are not at all legitimate, but still they are noted as profit unlawfully. Eventually the company or individual is no longer able to keep up with the scheme by securing more investors. When this occurs, the Ponzi Scheme inevitably falls apart since they can no longer pay any of their current existing investors and the “project” or “company” has not garnered any real profit at all.

To speak to a qualified attorney about the nature of and consequences related to Ponzi Scheme, call the legal team at Goldstein & Orr.

Ponzi Scheme Fraud Lawyers, San Antonio TX

To fully understand the nature of Ponzi Schemes under federal law, you’ll need an experienced legal professional on your side with experience defending people from financial and/or white-collar crimes. These types of cases often require expert testimony from several financial experts and a vast knowledge of federal laws in order to obtain a favorable outcome for the case.

At Goldstein & Orr, our attorneys are highly skilled at preparing formidable defenses for complicated Ponzi Scheme allegations. The attorneys at Goldstein & Orr have over 70 years of collective experience creating effective and efficient defenses for our clients—and our track record proves it. Schedule your first consultation with Goldstein & Orr today by calling our offices at (210) 226-1463 or simply submitting an online contact form.

Goldstein & Orr has offices in San Antonio, but we accept clients throughout the great State of Texas including Bexar County, Austin County, Caldwell County, Kendall County, Montgomery County, Travis County, Williamson County, and more.

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What is a Ponzi Scheme?

As with most financial criminal offenses, Ponzi Schemes have a long history of occurring in the United States since the 1920’s. The offense was named after Charles Ponzi, who was charged with 86 counts of mail fraud after running a highly profitable and expansive investment scheme. Ever since companies and individuals have engaged in Ponzi Schemes over the years, which has caused the U.S. District Attorney’s Office to be on high alert for criminal complaints.

The crime is a type of investment fraud where the alleged offender operates a scam that promises high rates of returns for investors with little risk. In reality, these companies or individuals are focusing their efforts on securing new investors in order to pay off their original investors, which is then noted as profit. Eventually, the alleged offender or company will fall into a cycle of collecting as many investors as possible in order to pay previous investors their returns. New income from new investors is purported as profit to previous investors meanwhile the individual or company running the scheme has no intention of investing in any project or product with the funds collected.

As long as the company or individual can secure new investors, they are able to keep their previous investors’ confidence intact. In fact, it’s common in Ponzi Schemes for investors to get so excited about their high return that they encourage other people in their network to invest. However, eventually (as it always does) the organizers of the scheme will run out of investment opportunities or they will be unable to keep up with the rate of returns. Once this occurs, the organizers of the scheme will have no choice but to leave all their investors behind without any of their promised profits.

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What is a Ponzi Scheme Example?

The first Ponzi Scheme recorded in the U.S. was by Charles Ponzi in 1920. At the time, Ponzi had a business where he would buy international postal reply coupons relatively cheap in other countries. From there, he would exchange these stamps for more expensive ones in the United States and then sell them at a significantly large profit. He then courted investors with an incredibly opportunity, which was a 100% return within 90 days. In reality, Charles Ponzi was paying early investors with money collected from newly secured investors. Eventually, his scheme would come crashing down and result in prison.

However, it’s important to know these types of financial frauds still exist today. In fact, one of the biggest Ponzi Scheme ever run in U.S. history occurred a little more than ten years ago in 2009. Bernie Madoff, who was an American financer, defrauded thousands of investors (some who were highly reputable people such as Steven Spielberg) for a scheme running 17 years. There are even social media-based schemes such as the Blessing Loom that operate solely on the internet platform Facebook.

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What is the Punishment for Running a Ponzi Scheme?

The penalties for operating a Ponzi Scheme are dependent on the facts of the case. These acts violate federal fraud, theft, and money laundering laws—which carry life-changing penalties. In most cases, these crimes carry a punishment of up to 30 years in federal prison and/or fines and restitution could amount to millions of dollars per occurrence.

The court will determine their punishment based on several factors including how many victims were involved and the prolonged life of the scheme. In order to convict a person of operating a Ponzi Scheme, the U.S. District Attorney’s Office will have to prove the following:

  • Defrauding an investor or person in connection with a commodity for future delivery or any option on a commodity for future delivery
  • Promises a return in connection with the purchase or sale of any commodity for future delivery
  • Obtaining investments through false or fraudulent pretenses

When it comes to Ponzi Schemes, often three presumptions exist.

  • Transfers from the debtor in furtherance of the Ponzi Scheme was made with intent to commit a scheme to defraud
  • The alleged offender who runs the Ponzi Scheme is insolvent
  • The “value” of the operation is limited to the original investment of the obligation

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Additional Resources

Ponzi Schemes | U.S. Securities and Exchange Commission – Visit the official website for the U.S. SEC to learn more about Ponzi Schemes. Access the site to learn what a Ponzi scheme is, signs you may have invested in one, how many operators of these schemes target seniors, and Ponzi Schemes in relation to virtual currency or cryptocurrency.

Laws on Ponzi Schemes | U.S. Code – Visit the official website for the U.S. Code to read Chapter 18 Section 1031 titled “Major Fraud Against the United States.” Access the site to learn more about the elements of fraud defined in the U.S. Code, potential penalties, statute of limitations, and other valuable information.

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Ponzi Scheme Lawyer in San Antonio, TX | Federal White-Collar Crimes

If you or someone you know is under investigation for a Ponzi Scheme, contact Goldstein & Orr. Our attorneys are more than equipped to take on your case and start building a sturdy defense for you immediately. The violations associated with Ponzi Schemes carry life-altering penalties, so it’s imperative you act quickly,

Call Goldstein & Orr today at (210) 226-1463 to schedule an appointment or simply submit an online contact form. Goldstein & Orr has offices in San Antonio, but accepts clients throughout the Lone Star State of Texas.

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