David L. McCormick

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What to know about Ponzi schemes

On Behalf of | Apr 28, 2021 | White Collar Crimes

The term white-collar crime takes its name from the most likely offenders, which are business people. These crimes do not rely on violence, but gaining trust with the intent to deceive. A common type of white-collar crime in Minnesota is the Ponzi scheme, which takes several forms.

Overview of the Ponzi scheme

A Ponzi scheme promises investors they can make a huge profit from a small investment with consistent returns. An Italian swindler from the early 20th century named Charles Ponzi gave the scam its name, although it has existed since the mid-1800s. When Ponzi figured international postal reply coupons had a better exchange rate in the United States, he concocted a plan to make a profit.

He lured investors into paying a “start-up” cost, which would return them 50% profit in 45 days and a 100% profit in 90 days. However, the scheme soon folded, because Ponzi ran out of investors and never invested money in the alleged product. Ponzi schemes rely on old investors getting paid with money from new ones, so they think the scheme is working.

Common signs of a Ponzi scheme

A typical sign of a Ponzi scheme is claiming investors have nothing or little to lose and are guaranteed consistent profits. No true investment comes without risk, however. The Securities Exchange Commission observes that economic factors influence the value of legal investments.

The SEC and many states require most investment opportunities to be registered with them. A scam will commonly have no paperwork or registration, or the paperwork will have errors. The scammer may commonly give a vague business description or make it hard to understand.