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How Ponzi schemes work and red flags

On Behalf of | Apr 15, 2022 | Criminal Defense |

Financial crimes in West Des Moines, Iowa happen when the perpetrator has the intention of depriving a person of property through deceit. These schemes are commonly committed by individuals, corporations, or organizations. A Ponzi scheme is an example of a financial crime.

Overview of Ponzi schemes

Ponzi schemes are financial crimes that promise investors a high profit at little or no risk. However, the income they generate comes from the fees of early investors, making it sound like it works. However, if Ponzi schemes don’t get enough investors or most cash out, they collapse.

Ponzi schemes take their name from the most famous offender, Charles Ponzi, an Italian con artist. Ponzi discovered a way to profit from international postage reply coupons in and promised investors a 100% profit in 90 days. Postal reply coupons were worth more in the United States, so he could sell them for up to a 400% profit.

While pyramid and Ponzi schemes work in a similar manner, a pyramid scheme may sell a service or product. A pyramid scheme requires the new recruits to build a downline and they profit from the members below them.

Common signs of a Ponzi scheme

Not only do scammers promise high returns, but they also promise consistent high returns at little or no risk. There is no legal investment without risk or that doesn’t have fluctuating profits based on market conditions.

Laws require investment opportunities to be registered with the SEC, and the sellers need a license. If the licensing and registration are not available, or the background of a seller, it could be a scam. Some other possible signs of Ponzi schemes include issues with paperwork, pressure not to cash out, and secretor complex strategies.

A Ponzi scheme charge can include penalties of huge fines, restitution, and a long jail term. However, it is possible to defend the charges or plea to a lesser sentence.



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