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Criminal Defense Blog


Identifying a Ponzi scheme

Of the many white-collar crimes in the world today, Ponzi schemes can be especially devastating for small investors in Illinois. Many innocent people have lost substantial sums of money through this type of pyramid scheme.

Named after an unscrupulous individual named Charles Ponzi in the early part of the 20th century, the scheme revolves around a promise of a high rate of return on an investment based on recruitment of additional investors. A Ponzi scheme works on a pyramid-type structure.

The initial investor sits at the top of the pyramid. He or she will promise a high rate of return to others, provided these investors convince others to invest. The first investors recruited will be paid through money invested by those lower on the pyramid. Investors are often asked to recruit family, friends, co-workers and others to invest in the company with a promise of a high rate of return in a short time.

A product or service may be presented as the source of income for the scheme. In reality, the primary source of income, or sometimes the sole source of income, is the money invested by those lower on the pyramid. Once investors have stopped placing money into the scheme, it usually collapses and the people on the lowest rungs of the pyramid have lost all investment.

Though many legitimate enterprises obtain capital through multi-layered investment plans, the Ponzi scheme is different in that it essentially offers no legitimate product or service. In other words, it will emphasize recruitment of investors instead of product sales. Someone who has been accused of participating in an illegitimate endeavor may want to obtain legal representation.

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