When you're presented with a private investment option promising consistently high returns with no detail of the investment itself -- watch out. Ponzi schemes take money from "investors" to use for payouts for all those who are already invested. The key to a Ponzi scheme is that it only works so long as there are new investors joining and fresh money coming into the pool. They are illegal. If a Ponzi scheme is still operating, you may be able to get your money back with some help from law enforcement. Otherwise, you can establish a claim through the legal system, though your odds of recovery are low.
Report the Ponzi scheme to your local police or sheriff's department the moment you realize your investment is a hoax. Unless it's a small, localized operation, they may bring in other agencies such the Federal Bureau of Investigation who may also contact the federal Securities and Exchange Commission (SEC). Let your local law enforcement figure out the appropriate resources -- they have a responsibility to take your report and guide you.
Obtain a police, FBI or other law enforcement report. You may need an official report for any future legal action you take to get your money back.
Communicate frequently with the officers handling your case. If the Ponzi scheme is in operation, and law enforcement can successfully catch the people behind it, they will try to help everyone involved recover their original investment. It may take time, both for law enforcement to make a bust and for officials and regulators to sort through the details to develop a fair system for reimbursing investors.
File a civil suit against the people responsible for the Ponzi scheme. You may even be able to organize a class-action suit to help other victims. A litigation attorney can help outline your options based on the details of your case and applicable state and federal law. Keep in mind that while you may likely win a law suit against a Ponzi scheme operator, the perpetrator may not have the funds to pay judgements if the scheme has collapsed. However, if you catch on while the scheme is in operation, you have some hope.
Tips & Warnings
- Scam Victims United operates a website for victims of Ponzi schemes where you can get information and communicate with other people in similar situations. Also, the IRS allows Ponzi scheme victims to disclose their losses and apply for tax relief. You may need the help of a qualified accountant to take full advantage of this option.
- Be wary of investment products not listed with the SEC. These are unregulated and likely illegal. Ask for an official prospectus for any investment you may consider. All legitimate investments are required by law to produce brochures detailing the investment, its operators and how it works.
- "The Wall Street Journal"; The 12 Steps to Ponzi Scheme Recovery; Rachel Feintzeig; March 4, 2009
- James Eccleston Law Firm: Ponzi Scheme Recovery
- FBI: Common Fraud Schemes
- CBiz: IRS Issues Guidance and Safe Harbor for Reporting Ponzi Scheme Losses; 2009
- Securities and Exchange Commission: Ponzi Scheme FAQ
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