Ponzi Schemes

Pyramid schemes are commonly referred to as Ponzi schemes, named after one of the first globally known and successful pyramid scheme fraudsters, Charles Ponzi. The characteristics of these investment schemes include a large group of mostly uninformed investors who are lured into high return, exotic investments.

Ponzi schemes are also explained as pyramid schemes where payments of new recruits are used to pay returns to existing participants. Returns in Ponzi and pyramid schemes are often far above market rate. Risk is downplayed and advance payments in the early days of the scheme create investor confidence. Trickery is often used by extensive pyramid schemes where additional commission is paid to investors upon successful recruitment of new investments.

The scope and nature of Ponzi and pyramid schemes makes recovery for all participants difficult. The initiator of the scheme may deal in products, services, or securities. The latter is particularly interesting since securities trading leads to licensing requirements and violations contribute to public sanctions and criminal proceedings.

Investment fraud comes in different types and shapes. Sophisticated schemes may use difficult to unravel international corporate structures. These corporations are often registered in offshore financial centers or tax havens. Hidden profits in these offshore jurisdictions require clear evidence and causality with investor payments to justify confiscation. As such, it is not easy to recover lost funds from Ponzi fraud.