What Should Fraud Victims Know About Ponzi Scheme Recovery

Ponzi Scheme Recovery

It often happens that people entrust their life savings to a somebody they know only good things about, only to be victims of financial fraud. If you believe your money were placed in a bad investment, here is what you should know about Ponzi scheme recovery.

Ponzi scheme mechanism

A Ponzi scheme is a type of investment fraud in which the money of new investors is used to pay the previous investors instead of returns from the business venture. Ponzi schemes usually involve:

using the funds of new investors to pay earlier investors;
telling the previous investors that the money comes from profits of the business venture; and
using ruses and misrepresentations to prevent investors from realizing that the scheme is an empty shell with no real profits from which to pay distributions.

Scammers will often fabricate transactions, falsify account entries, or inflate asset values. If you learned or suspect you invested in a Ponzi scheme, you should consider reaching out to a securities lawyer for help with seeking to recover investment losses.

The Most Famous Ponzi Scheme

Most Ponzi schemes are variations of the same tune. They promote a business that, in reality, is not profitable, and raise money from investors under the false assurances of clockwork, regular distribution payments or promises of substantial increases in the value of their investment.

The first well-known, modern Ponzi scheme was perpetrated by Charles Ponzi in the 1920s. Charles Ponzi took advantage of the ever-changing exchange currency rates to scam his investors. Since postal reply coupons were cheaper in Italy and Spain, they could be bought and converted to US Posta stamps that were worth more than those in Spain or Italy.

Charles Ponzi started a scheme and invited investors to invest in the business of buying these coupons at a discount and selling them to businesses. However, he invested in the business for the first few weeks only by buying coupons worth $30. After that, he spent the money from new investors paying the other investors.

Since there were about 27,000 Posta coupons in circulation, they could not support the scheme which required about 160 million similar coupons to be in circulation. Therefore, Ponzi fraudulently raised about $10 million from new investors. Other factors such as administrative costs made it hard for his supposed business to work on a large scale. The scheme ultimately ran out of steam and collapsed.

A Ponzi scheme requires a constant flow of new money, and when that fails, it implodes.

Top Three Things Fraud Victims Should Know About Ponzi Scheme Recovery

Ponzi Scheme Recovery
Ponzi Scheme Recovery

1. It May Be Possible to Recover Ponzi Losses From a Brokerage Firm

After a Ponzi scheme collapses, the first step most investors think is understanding their legal options, so they can choose an appropriate course of action to try and recover their money. To do so, victims of Ponzi schemes should consider talking to an experienced securities lawyer who may be able to determine whether the investor can recover his or her money back.

Sometimes, promoters or agents who sell Ponzi investments are licensed stockbrokers or investment advisors, affiliated with stockbrokerage firms or investment advisory businesses. Those firms may be liable, in some circumstances, for their advisor’s sale of fraudulent, Ponzi investments to their customers.

Brokerage firms typically have a duty to adequately supervise their advisors and prevent them from violating the securities rules and regulations. Those firms also have to monitor and approve all investment products such brokers recommend and sell to their customers. When they fail to do so, firms may be held liable to their customers for investment losses.

2. Your Broker or Adviser Might Be Liable

If the Ponzi scheme investment was recommended by a broker or advisor, that person might be liable for the investor’s losses. An experienced securities lawyer may be able to evaluate the facts and identify potential legal claims that may be brought against the advisor to try and recover your losses.

Of course, the facts in each case must be carefully evaluated for a lawyer to be able to determine whether the investor has a case, and provide appropriate legal advice to that investor. No legal advice can be provided before a close examination of the facts of each case.

3. Other Professionals That Assisted in, or Enabled the Ponzi Scheme, May Be Liable for Investor Losses

Once a Ponzi scheme reaches a certain size, it typically needs professional infrastructure to continue to expand. Schemers often need accountants, lawyers, bankers, auditors, custodians, and other professionals to assist them with various aspects of their fraud. If and when such professionals become aware that they are assisting or involved with a fraud, they may become liable to the victims of the fraud, and might become in effect complicit in the fraud.

An experienced securities fraud lawyer might be able to identify such professionals and determine whether their conduct could be a basis for legal claims on behalf of investor who lost money in the Ponzi scheme. Careful evaluation and legal research are typically required, and legal advice can only be provided to investors upon learning of their particular facts and circumstances.

Ponzi schemes are a plague that continues to victimize numerous hard-working investors, and wipe out their life savings. Older investors are particularly vulnerable, since they do not have the ability to go back to work and make up their losses. If you suspect that you or a loved one may have been a victim of fraud, you should consider contacting an investment fraud attorney and seeking advice regarding ponzi scheme recovery.

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