Perhaps the largest and most infamous Ponzi scheme in history was recently conducted by investment broker Bernie Madoff. After all was said and done in that case, thousands of investors lost billions of dollars and Mr. Madoff received hefty penalties.
In 2009, Madoff was convicted on multiple criminal counts and was sentenced to 150 years in federal prison.
But, just as high-profile Ponzi schemes attract national media attention, there are many smaller schemes that take place—some even in Florida—that receive little fanfare. The results of these scams are just as devastating to those investors caught up in the mess.
Just recently in South Florida, investment broker Scott Rothstein and his uncle were found guilty of conducting a $1 billion Ponzi scheme. Earlier this year, Chris Maguire of Dr. Phillips was accused of fleecing several people associated with Christian churches out of millions of dollars.
So, What Exactly is a Ponzi Scheme?
Like most securities scams, Ponzi schemes are possible due to the trust that victims place in their investment advisors. Oftentimes, this trust is established over time and through multiple transactions. Once a defendant knows that he or she has a victim’s trust, a Ponzi scheme can begin to form.
According to the United States Securities and Exchange Commission, a Ponzi scheme is a form of investment fraud that involves a broker promising and paying falsified investment returns to current investors FROM funds contributed by new investors.
For example, a Ponzi schemer may promise one investor a ridiculously high rate of return, such as 15%. The schemer will then take money contributed by new investors and pay the first investor a high rate of return.
But, here is the catch: The broker will not actually invest the funds to get the high rate of return. He or she will just use new money to pay back old money.
The scheme can go on as long as people keep rolling over their “winnings” or as long as new people keep investing. Once investors stop reinvesting their money and once the fund has no new investors, the money dries up and the schemer(s) can no longer pay out the investors’ money.
Not only can they not pay the investors their money with the promised high rate of return, they cannot pay back even the original amount that was invested…because it’s all gone.
Just like in Bernie Madoff’s case, when the economy tanks and the fund has no new money, the scheme collapses and investors are out of luck. That is when the civil and criminal complaints start to pile up. Unfortunately, many investors never get their money back.
What Can You Do if you Find Yourself a Victim of a Ponzi Scheme?
If you believe your business was the victim of a Ponzi scheme, then it is critical to contact a business litigation attorney who also specializes in securities fraud. Your attorney will be able to determine if you have, in fact, been the victim of a fraud and if you have a case.
He or she will also be able to guide you through the legal process, as well as the best steps to take to work on rebuilding your finances after this devastating loss.