Definition of a Ponzi Scheme

Definition of a Ponzi Scheme

There are many businesses out there with investment opportunities; legitimate businesses that can create real income for the right person/people. However, because of a few unscrupulous individuals, a lot of this companies are frowned upon by the average person. They feel any opportunity that is “too good to be true,” is. To them, the word “investment” has now become synonymous with the term “Ponzi scheme.” And unfortunately for many individuals looking for investors, they get accused of running one. So, in order to protect yourself from being accused of running a Ponzi scheme, and eventually having to seek an attorney, make sure your business doesn’t look like one.

A Ponzi scheme is an investment fraud that basically circulates money by paying existing investors with money collected from new investors. Ponzi scheme organizers promise to invest your money and give you a high return with virtually no risk to you. But instead of investing your money, they use it to pay those who have already invested, and of course, they take a cut for themselves. With no real or legitimate investment, Ponzi schemes always need new investors to keep the scheme alive. The scheme collapses when a significant amount of investors decide to cash out, or the organizer cannot find any more new investors. The Ponzi scheme is named after Charles Ponzi, who swindled numerous investors with a postage stamp speculation scheme nearly 100 years ago (1920s).

What to Look Out For

Many Ponzi schemes have identifiable characteristics you can spot. This is great in protecting yourself so you don’t inadvertently create one.

If your investment opportunity emphasizes a high return with no risk, that may be a red flag to people. Every investment has some risk. The higher the return, the higher the risk. And no investment comes with a guarantee.

People may be suspicious of your investment opportunity if you promise them “consistent returns.” Investments go up and down. If you promise your investors positive returns even when the market is going horribly, it may make them think twice about investing.

A Ponzi scheme attorney will probably ask you if your investment is registered with the SEC or state regulators. You want your investors to have peace of mind, and also be able to look up information on your company and the investment itself.

If you make your investment so hard that investors can’t cash out, they will take that as a sure sign of a Ponzi scheme. If your investment is legitimate, you want your participants to be able to access their money if they need to. Anything otherwise and you will definitely need an attorney to represent you.

Being accused of running a Ponzi scheme can not only damage your reputation but could land you behind bars. If you are in Salt Lake City and you need representation, give  Salt Lake City Criminal Defense Attorney Joseph Jardine a call. He will defend you and make sure your image stays intact as much as possible.