The SEC put out an alert regarding Ponzi Schemes
What is a Ponzi Scheme?
A Ponzi scheme is a type of investment fraud that pays existing investors with funds collected from new investors. There are no securities being bought or sold, nor an actual product or idea being invested in – only a schemer using the new investor funds for personal expenses.
With no legitimate earnings, those who run Ponzi schemes require a steady flow of new money to survive. Once the money runs out and it becomes difficult to find new investors, or when a large number of existing investors decide to cash out, the scheme crumbles.
To learn more about Ponzi schemes and how to blow the whistle on one, visit our Ponzi Scheme FAQ.
Ponzi Scheme Red Flags
The SEC’s notice provide these warning signs to look out for:
- High returns with no risk – every investment some risk, and those yielding higher returns typically pose a greater risk. Be very suspicious of any investment opportunity that guarantees high returns.
- Overly consistent returns – investments go up and down over time. Be highly skeptical about any investment that always generates positive returns regardless of poor or positive market conditions.
- Unregistered investments – schemes typically unregistered investments, which is important because it provides investors with access to information regarding a company’s management, products, services, and finances.
- Unlicensed sellers – federal and state securities laws require investment professionals and firms to be licensed or registered. Most schemes involve unlicensed individuals or unregistered firms, so it’s wise to check with the SEC first before making any large investment decisions.
- Complex strategies – it’s safe to avoid an investment if you don’t completely understand them or can’t get any information about them.
- Issues with paperwork – account statement errors may be a sign that funds are not being invested as promised.
- Unable to receive payments – be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters often try to prevent participants from cashing out by offering even higher returns for staying put.
Ponzi Schemes Using Virtual Currencies
Virtual currencies have become mainstream and can be traded for online for fiat currency through exchanges, including the U.S. dollar, and also be used to purchase goods or services by others who accept crypto as payment.
The SEC is concerned about fraudsters using cryptocurrencies to lure investors into Ponzi schemes. The concern is that they schemers will use virtual currencies to facilitate fraudulent investments or transactions. The other concern is that the fraud may also involve an unregistered offering or trading platform. Like with traditional Ponzi schemes involving real money, these schemes often promise high returns for getting in on the ground floor. Fraudsters are attracted to using virtual currencies for their schemes, because transactions across the blockchain provide enhanced privacy, and have no regulatory oversight.
It’s important to note that any investment in securities in the United States remains subject to SEC scrutiny, regardless of whether the investment is made in U.S. dollars or a virtual currency. Those selling investments are typically subject to federal or state licensing requirements.
Legal Assistance
Those who know of a Ponzi scheme should report their concerns to the SEC using the information below. However, we strongly urge folks to contact an SEC attorney, as large whistleblower rewards, anonymity, and protections are available to those who bring a successful legal action against a Ponzi schemer.
If you know of a Ponzi scheme and would like to come forward, please contact our firm today for a free and confidential case evaluation. In most Ponzi scheme cases, there are no fees unless we can get a reward for your claim.
