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Ponzi Schemes

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Texas Ponzi Scheme Attorney

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A Ponzi scheme is an illegal investment campaign in which fraudsters recruit investors under the premise that they will receive massive returns quickly. The schemers fabricate marketing plans, generally with technical jargon unfamiliar to potential investors and, as more investors participate in the seemingly legitimate plan, their money goes to pay early investors rather than being invested. In a Ponzi scheme, the fraudster interacts with all participants and uses one participant's investment to pay returns to others.

Ponzi schemes are named after Charles Ponzi, a 1920s fraudster. The Italian moved to the United States and tricked New Englanders into investing in a stamp scheme, telling them he would buy stamps in Italy and sell them in the U.S. for a higher value.

After about $15 million was invested, Ponzi had only purchased about $30 worth of stamps. He merely used new investors' money to pay out early investors. He had a mansion and lived luxuriously, drawing attention to himself, which resulted in the public's interest. Ultimately, he was investigated, his public relations agent denounced him in The Post, and he was arrested. Ponzi, however, did not invent the scheme; it is named after him because his case was the first well-known case in the U.S.

Modern-Day Ponzi Schemes

  • Bernard Madoff Ponzi Scheme - Bernard Madoff controlled 25+ funds and handled approximately $17 billion. It was reported that his losses were estimated at $50 billion. He faces 20 years in prison and a $5 million fine for what is likely the largest Ponzi scheme in Wall Street history.
  • Tom Petters Ponzi Scheme - Tom Petters faced 20 counts of mail and wire fraud, money laundering, and conspiracy for a Ponzi scheme he allegedly ran for more than a decade. The businessman convinced naïve investors that his company was buying electronics and selling them to large chain stores for a profit. However, these transactions were not taking place. Instead, Petters Co. was producing fake purchase orders and keeping the investment money for itself. Petters was not caught by investors requesting returns but was turned in by his VP of Operations. She went to the authorities, agreed to help with the investigation and was, subsequently, offered a plea bargain.
  • Nicholas Cosmo Ponzi Scheme - Nicholas Cosmo, a former stockbroker and felon, served 21 months in prison for misappropriation of funds from 1998-2000. His website, however, claims his company Agape World Inc. has been a "private bridge lender" since 1999, months before he was released from prison. This "typo" and his January 26th arrest for $370 million worth of mail fraud add up to no good. Cosmo promised investors large returns from 48% to 80% per year but invested only about $10 million of investors' money. Investigators' reports show that only $764,000 of the $370 million remains in Agape accounts and explains most of it was used to pay early investors. Although reports do not officially name Cosmo as a Ponzi schemer, he looks like one.

Ponzi Scheme FAQ

What are some warning signs of a potential Ponzi scheme?

There are a few red flags you can look for in an investment, which may indicate a Ponzi scheme or similar plot to take your money with no real investment or returns:

  • You’re guaranteed high returns with little to no risk.
  • You’re receiving overly consistent returns, even though the market is fluctuating.
  • The investments are not properly registered.
  • The seller is not properly licensed.
  • You have not been provided with clear, consistent paperwork regarding the investment.
  • The investment strategies seem overly complex or are not explained to you at all.
  • You’re having trouble receiving the payments you were promised.

If an investment seems too good to be true, it’s probably a scam.

What should I do if I believe I was the victim of a Ponzi scheme?

Whether the scheme has already collapsed or you are just now beginning to suspect that you’ve been the victim of a Ponzi scheme, you can take a few steps to protect yourself and your assets. First, be careful about what you say to your broker or brokerage firm. You may be tempted to immediately raise your concerns, but they could become defendants if you have to sue to recover your losses. Instead, gather all documents and information related to your investments, including any correspondence between yourself and your broker. Print this information out or keep it somewhere you know is secure.

As soon as possible, involve our experienced investment fraud attorneys. You may be able to recoup your losses, but this can be complicated and challenging. Our team is experienced with representing Ponzi scheme victims and can get to work immediately, protecting your interests.

Can I recover the money I lost in a Ponzi scheme?

Many times, the fruits of a Ponzi scheme are long gone—used to pay investors or spent on luxuries for the schemer. Some of this money can be recovered, but this is a long and arduous process. The schemer may not have enough assets to repay all the investors who lost money. However, brokerage firms and other third parties may be held liable for contributing to the scheme or negligently allowing it to persist. These parties can sometimes be held legally responsible for your losses, even if they did not originate the scheme themselves. We can talk to you about your options and how to best recover your financial losses.

Our Houston Investment Fraud Attorneys Demand Answers

If you have incurred a serious financial loss as a result of investing in a Ponzi scheme or other fraudulent investment, you have rights. You may be entitled to recover losses from those responsible. The team at Arnold & Itkin LLP aggressively represents clients and can help you in litigation or arbitration of investment fraud claims.

To schedule a free and confidential consultation, contact a Houston investment fraud lawyer today. We've recovered billions for clients because we always take their fight personally. We're ready to help at (888) 493-1629.

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  • $205 Million Confidential Settlement Obtained for Numerous Clients Arnold & Itkin reached a record $205,000,000 settlement on behalf of clients after several years of hard-fought litigation. The case settled just before trial was set to begin.
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  • $116 Million Confidential Settlement Arnold & Itkin LLP negotiated a massive nine figure settlement on behalf of their clients after several years of hard fought litigation.
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