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If you are an investor who has suffered investment losses as a result of a Ponzi scheme, you’re not alone. In fact, Ponzi schemes are reaching levels that haven’t been seen in a decade, putting many investors in a difficult position.

Losing your hard-earned money to a Ponzi scheme can be devastating. And frequently, it can also be surprising. This is because many investors often don’t realize they’ve fallen victim to a Ponzi scheme until it’s too late. 

While this can be difficult to process, know that it’s not the end of the road. There are ways that you can fight to recover your investments. 

If you need help figuring out how to recover from a Ponzi scheme, the Law Offices of Robert Wayne Pearce, P.A., is ready to help.

Investment loss attorney Robert Pearce specializes in getting individuals their money back from bad investments. He has been helping his clients recover for over 40 years and will fight to do the same for you. 

Ponzi Schemes: An Overview

According to one source, there were an estimated 60 Ponzi schemes uncovered in 2019. In total, these schemes resulted in $3.245 billion in losses to investor funds. 

But what exactly is a Ponzi scheme? 

Knowing the answer to this question can help you identify whether you may have fallen victim to a Ponzi scheme. If you have, contact our team today to find out how we can help you recover.  

Where Does the Name “Ponzi” Scheme Come From?

In the 1920s, a man named Charles Ponzi promised investors they would receive a 50% return within 45 days by purchasing discounted reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. Ponzi, in reality, was using the funds of later investors to pay the earlier investors to fund his scheme. 

Ponzi operated this scheme for over a year, resulting in over $20,000 in losses to investors.

What Is a Ponzi Scheme? 

A Ponzi scheme is a form of financial fraud. Typically, a ponzi scheme operates by inducing investments from unsuspecting investors often by promising high, risk-free returns over a short period of time from a purportedly legitimate business venture. 

In a Ponzi scheme, money funded by new investors is used to pay returns to older investors, rather than money actually made by the purported business. Essentially, the scheme relies on the constant flow of new investor money to survive. 

Key Elements of a Ponzi Scheme

A Ponzi scheme is a specific type of investment fraud that has a few distinct characteristics. The key elements of a Ponzi scheme involve:

  1. Using new investor funds to pay earlier investors;
  2. Representing that the returns are generated from a purported business venture; and
  3. Attempting to hide the lack of economic success of the purported venture or defer the realization of loss.

If these elements exist in your scenario, there is a chance you may be the victim of a Ponzi scheme. An investment loss attorney can help you determine whether this may be the case and what you can do to recover. 

Warning Signs of a Ponzi Scheme

Knowing the definition of a Ponzi scheme is one thing. But being able to identify one is another thing entirely. 

In fact, identifying a Ponzi scheme is more difficult than you might think. However, knowing the warning signs of a potential Ponzi scheme is the first step to avoid potentially being involved in one. 

The Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have published a list of characteristics that are common to most Ponzi-like schemes. When attempting to identify a potential Ponzi scheme, look for these red flags.

Promises of High Returns with Little to No Risk

All investments inevitably carry some risk. Thus, any promise of a “guaranteed” high-return investment should be treated with skepticism.

Typically, investments that yield high returns are riskier than investments that yield low returns. If the promise of returns seems “too good to be true,” it probably is.

Overly Consistent Returns

It is well-known that the market can be very volatile. Thus, investments usually go up and down over time, rather than remaining constant or going up consistently without any fluctuation. 

If you are receiving all positive returns, even during times of market volatility, this could be a red flag. Seek more detailed information about your investments, and if something seems off, contact an attorney to discuss your options. 

Unregistered Investments

You should always be weary of investments that are unregistered. 

Registration provides investors with access to important information about the company offering the investment. If a broker is selling or recommending investments that are unregistered, this may be a sign of a potential Ponzi scheme. 

Unlicensed Sellers

Always be suspicious of sellers who claim they are exempt from licensing. 

In fact, federal and state laws require sellers to be licensed or registered. Many Ponzi schemes involve unregistered sellers or unregistered broker-dealers.

Difficulty Receiving Payments

As an investor, you should have the ability to cash out your investments when you choose to do so. 

If you are unable to cash out your investments easily or if you have received multiple offers to “roll over” your promised payments for an even higher return, this could be a red flag. 

I May Have Invested in a Ponzi Scheme—Now What Can I Do?

If you believe you might be the victim of a Ponzi scheme, you might feel tempted to give up. But don’t do so quite yet. 

Parties that defraud investors through a Ponzi scheme can be held liable for the losses caused by their actions. This includes brokers, financial advisors, and brokerage firms. 

Additionally, if a broker-dealer is registered with FINRA, you may be able to file a FINRA arbitration against the broker who defrauded you and caused you to lose money. 

So what’s next? Here’s what you need to know about how to recover from a Ponzi scheme. 

Gather All Relevant Information

If you suspect that you are a victim to a Ponzi scheme, it is important to take action immediately.

Make sure to gather any potential evidence you can to help support your case. 

Examples of information that may be useful include: 

  • Communications with your broker-dealer; 
  • Documents provided to you by your broker-dealer throughout the relationship;
  • Name and contact information for your broker-dealer; and
  • Copies of investment information you relied upon. 

It is important to preserve anything that is related to your relationship with your broker or the Ponzi scheme.

Contact an Experienced Investment Loss Attorney

Before moving forward, contact an attorney who has experience in handling Ponzi schemes.

Ponzi schemes are complicated—that’s precisely why so many investors are defrauded each year in Ponzi schemes. Thus, it is imperative that you have someone in your corner with the experience necessary to handle such a complex legal matter. 

If you want to know how to recover from a Ponzi scheme, The Law Offices of Robert Wayne Peace, P.A., has the answers you need. 

In our more than 40 decades of practice, we have helped countless clients recover their investment losses. If you are the victim of a Ponzi scheme or other types of investment or securities fraud, contact our office online or by phone at 561-338-0037 for a free consultation, and see how we can help you.

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