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Ponzi Schemes: What they are, why they matter

On Behalf of | Nov 21, 2016 | Criminal Defense, Securities Fraud |

High-rolling lifestyles can be very appealing. People with large incomes can afford to bankroll projects, fund charities and even help siblings and friends with monetary gifts. Generosity not only looks good, it genuinely feels good. But what happens when someone goes too far, too fast, in chasing a financial dream?

Who was Charles Ponzi?

Perhaps no one really starts out with the idea to de-fraud. Perhaps it begins with a genuine desire to see high returns quickly and solidly, and in turn pass on those benefits to others. It began in the 1920’s with a man named Charles Ponzi, and even with Mr. Ponzi, it is s unclear whether he set out to actually defraud his investors.

In the 1920’s, when sending items or correspondence over-seas, it was not unusual for the seller/sender to include an international reply coupon (a coupon that was used to purchase postage) to ease return or response from the person with whom they were communicating.

These IRC’s could be purchased in America, but were less expensive when purchased in the country to which they were being sent. Mr. Ponzi recruited investors with the idea of buying them in the country of their origin, and re-selling them in America for a profit. The profit would be split among investors. Up until that point his venture was legal.

When ingenuity turns illegal

The business, however, did not pan out as hoped, and Mr. Ponzi–in order to pay off his original investors–began recruiting more investors. The money taken from the new investors was paid to the original investors. At this point no investing was happening at all–only the promise of it. That is when Mr. Ponzi’s actions became criminal.

It is against the law to sell securities, or make investments for clients, or promise exorbitant returns for companies that do not exist. From Bernie Madoff to Tom Petters to Lou Perlman, these enterprises continue and, unfortunately, continue to end with the instigator going to federal prison on charges ranging from a variety of fraud–mail, securities and wire, among others–to racketeering, bribery and tax evasion.

Some of the best laid plans may turn into criminal activities without you even being aware. What seems like a very good idea, might just be; but it might also skirt on the edges of what is illegal. If you believe you may be in such a situation, contact a criminal defense attorney experienced in white collar/federal crime.