A Ponzi scheme, also known as a Ponzi game is an investment fraud that promises high rates of return with little risk to investors. The scheme generates returns for older investors from capital paid by new investors rather than from income earned from legitimate sources. Companies that engage in MLMs aim at attracting new customers to make investments. If there are no new clients, the entire system collapses. MLMs are named after Charles Ponzi, who swindled investors over $65 billion in the 1920s with a postage stamp speculation scheme. Here are important details our white collar crime lawyers think you should know about MLMs in West Palm Beach.
Common Characteristics of Ponzi Schemes
Unclear Business Models
Promoters of MLMs will attempt to distract you with big numbers, hoping that you do not notice that the business does not make sense. They will often discourage you from asking questions or contact them every time you need them. In investment pool or hedge funds, like the Bernie Madoff’s scheme, most numbers will not add up if you take the time to recalculate everything. Be highly suspicious of any unclear business model.
High Returns with Little or no Risk
In the real business world, every investment has some degree of risk. Investments yielding higher returns usually involve more risk. If someone promises you “easy money” do not give them a moment of your time. Also, it is normal for investments to go up and down over time. Be suspicious if an investment generates positive returns regardless of the market conditions.
Both Federal and State governments require companies to be registered or licensed. Most Ponzi schemes involve unregistered firms or unlicensed individuals. Additionally, most MLMs are not registered with the appropriate state regulatory bodies. Registration is vital as it allows investors to access information about a company’s management, finances, products, and services.
Difficulty Withdrawing Funds
In most cases, a Ponzi scheme tends to discourage its investors from withdrawing their matured funds. They will often give fake excuses or create unnecessary delays. Another red flag is account statement errors which indicate that funds are not being invested as promised. They may even offer you even higher returns to prevent you from withdrawing money at the time you needed it.
What to Do if You Have Invested in a Ponzi scheme
If you have invested your money in a scheme that prohibits these features, please do the following. First, stop investing any more money. Second, check if the firm is in the registered and licensed by your local and federal government. If they are not, report the scheme operators to either one of the following authorities:
• Federal Trade Commission (FTC)
• Financial Fraud Enforcement Taskforce
• U.S. Postal Service
• U.S. Securities Exchange Commission (SEC)
How Ponzi Schemes are Prosecuted
The US government has no single statute they can use to prosecute Ponzi schemes. However, the State of Florida has codified the Deceptive and Unfair Trade Practices Act and other criminal codes to protect customers. Some common penalties for Ponzi schemes promoters include paying hefty fines or jail term if they are convicted.
For more information, speak to a white collar crimes attorney today.