A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. This is also an attempt to lure investors into investing even more money in to the account. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.
The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of Bernard Madoff demonstrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for long periods: Madoff's variant of the Ponzi Scheme stands as the largest financial investor fraud in history committed by a single person. Prosecutors estimate losses at Madoff's hand totalling $64.8 billion.
Securities regulators and other prominent groups estimate civil securities fraud totals approximately $40 billion per year. Fraudulent schemes perpetrated in the securities and commodities markets can ultimately have a devastating impact on the viability and operation of these markets.
Class action securities fraud lawsuits rose 43 percent between 2006 and 2007, according to the Stanford Law School Securities Class Acton Clearinghouse. During 2006 and 2007, securities fraud class actions were driven by market wide events, such as the 2006 backdating scandal and the 2007 subprime crisis. Securities fraud lawsuits remained below historical averages.
Some manifestations of this white collar crime have become more frequent as the Internet gives criminals greater access to prey. The trading volume in the United States securities and commodities markets, having grown dramatically in the 1990s, has led to an increase in fraud and misconduct by investors, executives, shareholders, and other market participants.
Securities fraud is becoming more complex as the industry develops more complicated investment vehicles. In addition, white collar criminals are expanding the scope of their fraud and are looking outside the United States for new markets, new investors, and banking secrecy havens to hide unjust enrichment.
A study conducted by the New York Stock Exchange in the mid-1990s reveals approximately 51.4 million individuals owned some type of traded stock, while 200 million individuals owned securities indirectly. These same financial markets provide the opportunity for wealth to be obtained and the opportunity for white collar criminals to take advantage of unwary investors.
Recovery of assets from the proceeds of securities fraud is a resource intensive and expensive undertaking because of the cleverness of fraudsters in concealment of assets and money laundering, as well as the tendency of many criminals to be profligate spenders. Their creative ways of hiding money in personal and family accouns makes it extremely difficult for authorities to trace the money if any. A victim of securities fraud is usually fortunate to recover any money from the defrauder.
In todays investment market, when being confronted with a high return investment opportunity that claims paying returns of over 20 to 30 percent be aware that it just might be a scam. Normally the con-arts promise and try to persuade people of unusually high returns on their investment that can be hard to resist. They further try to strenghten their calims by providing all kinds of phoney charts and reports about the future of your money with their company that in all of the cases turns out to be nothing but a fluke.
Here is some helpful links for investigating an investment:
Securities and Exchange Commission
www.sec.gov
Securities Fraud Attorney
Lose your retirement? Fight
back against investment fraud.
www.Securities-Lawyers.net
