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What is a pyramid or “Ponzi” scheme?

A Ponzi scheme is a white-collar crime involving investment fraud. It’s not a crime of violence, but rather one of deceit. 

The scam generally consists of an investor giving an entity a lump sum of money in the hopes of making a large return on their investment. Existing investors are paid a dividend from funds collected from new ones. There’s never any actual money invested as part of this scenario. The entity that pockets the vast majority of the funds is generally the person who initially set up the scheme. Running a Ponzi or pyramid scheme is a crime under both Virginia and federal law.

Where did the Ponzi scheme get its name?

The name comes from a swindler of the 1920s named Charles Ponzi. He defrauded investors out of millions of dollars. He promised to take unsuspecting investors’ money and double it within 90 days by purchasing and reselling postal reply coupons. It took prosecutors seven months to uncover his scheme. He served 14 years in prison, and the judge presiding over his case ordered him to pay back his investors before deporting him from the U.S. 

What is an example of a recent Ponzi scheme?

Another Ponzi scheme that’s quite notable is that involving famed Wall Street investor Bernie Madoff. He duped other investors out of as much as $17.5 billion over 20 years. He attracted the attention of new investors by offering higher returns than other firms could. 

Madoff’s downfall came when his investors requested as much as $7 billion in withdrawals during the 2008 recession. He only had $300 million cash on hand. He couldn’t repay the $7 billion his investors wanted. Investors found this odd and alerted law enforcement, which ultimately discovered his pyramid scheme.

What options do you have if you’re facing criminal charges for a pyramid scheme?

Investors have learned a lot from watching Ponzi scheme investigations unfold in recent years. They’ve genuinely learned that if something does sound “too good to be true,” then it probably is. While many investors have become more critical about investment opportunities, those who manage these accounts have become increasingly more creative to avoid detection. 

You’ll want a serious felonies attorney representing you and your interests when you’re facing white collar criminal charges here in Lynchburg. It can be quite helpful if they have experience working as a prosecutor and thus a clearer perspective as to how Virginia and federal law works on all ends.