Many Texans have probably heard of Ponzi schemes even if they aren't certain what this particular crime entails. Several high-profile criminal cases have unfolded in recent years that involved Ponzi schemes. This type of fraud has deprived investors of millions of dollars and those responsible are routinely given stiff sentences.
A Ponzi scheme is a type of investment fraud. Named after a famous fraudster, this scheme works by creating the promise of a profitable investment opportunity to draw in investors. The fraudster will guarantee high returns at low risk. Once a few investors have handed their funds over to the fraudster, the search for new investors continues.
The person running the scam will use the money from new investors to pay "dividends" to the initial investment group. Of course, no returns are actually being paid out because no money was ever actually invested. The idea is to keep finding new investors so that the previous group can be paid off without becoming suspicious. This continues until the fraudster has made enough money and leaves or until the fraud collapses when too many investors simultaneously demand a payout.
This type of fraud is very serious because it usually involves huge sums of money being taken from a large number of people. It can sometimes occur in a corporate setting that can bring large investment firms into the mix. The end result is a large number of angry, swindled investors demanding tough punishments.
An attorney can help a defendant facing fraud charges by examining financial documents for discrepancies. If any are found, an attorney may be able to show that there is not enough evidence for a conviction. This post is for information only and should not be considered legal advice.
Source: US SEC, "Ponzi Schemes", November 26, 2014