Charles Ponzi. Bernie Madoff. When we think of the term “Ponzi scheme” those are the two names that pop into our heads. We also know the term implies a financial con of some sort, but it isn’t always so clear cut. You would be surprised at what passes as a charge involving a Ponzi scheme.
Federal and finance-related charges are serious trouble. When investment strategies go haywire and seem like they are a part of some illegal activity, you are already on the wrong track. Investment services usually start out legally and are legit businesses, but when they fail to meet financial goals, then you could end up in some legal trouble. Investment managers who are in fiduciary jeopardy, might use funds from new investors to compensate other investors. Fund managers temporarily falsify company information or lie about the funds, and then the falsification becomes permanent so they can hide evidence of wrongdoing.
If it sounds complicated, well that’s because it is. Investment fraud charges involve complex business procedures that might involve errors rather than intentional fraud. Of course, try explaining that to the federal government when you have lost people’s money. While there isn’t a single federal statute the U.S. government can use to prosecute pyramid schemes, in the past the FTC (Federal Trade Commission) has prosecuted pyramid schemes as deceptive trade practices. Each state in America has its own set of laws set up to fight against pyramid schemes, but if you are convicted then your punishment is pretty straight forward. Paying fines are assured, and depending on how crooked they find your operation to be, you could be looking at jail time.
Of course, with the right legal defense there is still a chance at explaining your side. It’s far better to seem incompetent, rather than immoral.