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What makes an investment opportunity a Ponzi scheme?

On Behalf of | Mar 30, 2022 | White Collar Crimes

If you save money, you want to invest it in a way that will maximize your returns. Some investment options are too good to be true.

Fraudsters promote many scams to take your money. A Ponzi scheme is a well-known type of fraudulent investment. Here are the key characteristics of a Ponzi scheme.

Misrepresentation of a business venture

In promoting a Ponzi scheme, the seller will tell potential investors about a business venture that does not exist. Promoters misrepresent the possibilities for returns related to some operations. The scammers will usually try to create a credible story about the company.

Use of investor funds

Instead of funds coming from the earnings of a business venture, a Ponzi scheme uses money from new investors to pay off claims from earlier investors. No enterprise is earning any profits or making money to go to stakeholders. Instead, the plan relies on getting new capital from more backers.

Falsifying records

As part of the ruse for the scheme, the fraudsters will produce false documents to show evidence of a profitable going concern. The records can include financial statements, such as income statements and balance sheets. Some schemers will have persons pose as executives of the fake business to show the operation’s existence.

If a person approaches you about making an investment, you should exercise caution. You will want to check if the salesperson is a licensed broker. State and federal law require the registration of investments for sale. You can verify any investment offering by confirming its registration.


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