Ponzi Scheme

A Ponzi scheme is a fraudulent and illegal investment operation that often involves no actual retail sales or investment activities of any kind. It is characterized by paying returns to existing investors with money from new investors in order to build confidence in the scheme. The Ponzi scheme attracts new investors by offering unusually high financial returns on their investment. The scheme continues to operate as long as there is a supply of new investors. The Ponzi eventually collapses since there are no investments and no earnings and it becomes difficult to recruit new investors or when the existing investors decide to cash out.

The Ponzi scheme takes its name from Charles Ponzi, who was convicted for fraudulent schemes he conducted in Boston, Massachusetts in the late 1920's. The most famous Ponzi scheme in the modern world was none other than Bernard Madoff who allegedly swindled investors for 50 billion dollars. Bernard Madoff was sentenced to over 150 years in Federal prison for his notorious scam.

Ponzi schemes are illegal in the United States. They are generally prosecuted under federal and state white collar crimes law: pyramid statutes, securities laws, wire and mail fraud statutes, and RICO laws. Ponzi scheme prosecutions are charged as felonies. Conviction for this type of fraud could result in lengthy state prison or county jail sentences, plus restitution to the victims. Consult with an experienced and skilled criminal defense attorney before speaking with law enforcement.